Some people are worried that the real estate market might crash soon. The high cost of living in New York and talk of a possible recession have fueled these concerns. However, the current housing market is not the same as it was during the 2008 crash. The data clearly shows that the circumstances are different now, and this isn’t a repeat of what happened back then. So, people shouldn’t worry too much about a crash happening anytime soon.
It’s Harder To Get a Loan Now
Getting a home loan was much easier before the 2008 housing crisis compared to today’s standards. Banks had lower lending standards, making it possible for most people to qualify for a home loan or refinance their existing one. This resulted in higher risk both for the lenders and the borrowers, which ultimately led to defaults, foreclosures, and falling prices in the market.
Mortgage companies have stricter standards today, making it more difficult for potential buyers to secure a mortgage. This is evident in the data provided by the Mortgage Bankers Association (MBA), as shown in the graph below. A lower number on the graph indicates greater difficulty in obtaining a mortgage, while a higher number indicates easier access to one.
Unemployment Recovered Faster This Time
The pandemic caused a spike in unemployment over the last few years. However, the jobless rate has already returned to pre-pandemic levels (as indicated by the blue line in the graph below). This is in contrast to the Great Recession, during which a large number of people remained unemployed for an extended period (as shown by the red line in the graph below).
The rapid job recovery this time around is beneficial for the housing market. With more people employed, there is a reduced risk of homeowners experiencing financial difficulties and defaulting on their loans. This contributes to a more stable housing market, with fewer foreclosures expected to be added to the market.
There Are Far Fewer Homes for Sale Today
During the housing crisis, there was an oversupply of homes for sale, including short sales and foreclosures, which resulted in significant price drops. In contrast, there is currently a shortage of inventory available for sale, largely due to inadequate home construction over several years.
The graph below, which uses data from the National Association of Realtors (NAR) and the Federal Reserve, illustrates the difference in the months’ supply of homes available now compared to the time of the housing crash. Currently, there is only a 2.6-months’ supply of unsold inventory, which is insufficient to cause home prices to fall drastically as they did in 2008.
Equity Levels Are Near Record Highs
The low inventory of homes for sale during the pandemic has contributed to the upward pressure on home prices. This has led to homeowners having near-record amounts of equity, as shown in the graph below.
The current level of equity held by homeowners is significantly higher than during the Great Recession. This places them in a stronger position to weather a potential economic downturn. According to Molly Boesel, Principal Economist at CoreLogic, the substantial home price increases over the past decade have resulted in homeowners having record amounts of equity, which protects them from foreclosure if they struggle to keep up with their mortgage payments.
Bottom Line
The graphs presented above should alleviate concerns about a potential crash in the current housing market. The most recent data indicates that the current market conditions are significantly different from those during the previous housing crisis.
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Tue, 16 May 2023 02:19:51 +0000
by Mottek Group