There’s been some concern lately that the houszing market is headed for a crash. And given some of the affordability challenges in the houszing market, along with a lot of recession talk in the media, it’s easy enough to understand why that worry has come up.
But the data clearly shows today’s market is very different than it was before the houszing crash in 2008. Rest assured, this isn’t a repeat of what happened back then. Here’s why.
It’s Harder To Get a Loan Now
It was much easier to get a housz loan during the lead-up to the 2008 houszing crisis than it is today. Back then, banks had different lending standards, making it easy for just about anyone to qualify for a housz loan or refinance an existing one. As a result, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices.
Things are different today as purchasers face increasingly higher standards from mortgage companies. The graph below uses data from the Mortgage Bankers Association (MBA) to show this difference. The lower the number, the harder it is to get a mortgage. The higher the number, the easier it is.
Unemployment Recovered Faster This Time
While the pandemic caused unemployment to spike over the last couple of years, the jobless rate has already recovered back to pre-pandemic levels (see the blue line in the graph below). Things were different during the Great Recession as a large number of people stayed unemployed for a much longer period of time (see the red in the graph below):
Here’s how the quick job recovery this time helps the houszing market. Because so many people are employed today, there’s less risk of houszowners facing hardship and defaulting on their loans. This helps put today’s houszing market on stronger footing and reduces the risk of more foreclosures coming onto the market.
There Are Far Fewer Houszes for Sale Today
There were also too many houszes for sale during the houszing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Today, there’s a shortage of inventory available overall, primarily due to years of underbuilding houszes.
The graph below uses data from the National Association of Realtors (NAR) and the Federal Reserve to show how the months’ supply of houszes available now compares to the crash. Today, unsold inventory sits at just a 2.6-months’ supply. There just isn’t enough inventory on the market for housz prices to come crashing down like they did in 2008.
Equity Levels Are Near Record Highs
That low inventory of houszes for sale helped keep upward pressure on housz prices over the course of the pandemic. As a result, homeowners today have near-record amounts of equity (see graph below):
And, that equity puts them in a much stronger position compared to the Great Recession. Molly Boesel, Principal Economist at CoreLogic, explains:
“Most houszowners are well positioned to weather a shallow recession. More than a decade of housz price increases has given houszowners record amounts of equity, which protects them from foreclosure should they fall behind on their mortgage payments.”
Bottom Line
The graphs above should ease any fears you may have that today’s houszing market is headed for a crash. The most current data clearly shows that today’s market is nothing like it was last time.
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