Why Today’s Housing Market Is Not About To Crash

Recently, there has been considerable worry that the housing market is about to fall. It's simple to understand why that concern has surfaced given the home market's affordability issues as well as the extensive media coverage of the recession.

However, the data demonstrates that the market today is considerably different from what it was before the 2008 housing meltdown. Be confident that what happened previously is not happening again. This is why.

It’s Harder To Get a Loan Now

Before the housing crisis of 2008, obtaining a mortgage was more simpler than it is now. The banks' diverse lending policies at the time made it simple for anyone to be approved for a home loan or to refinance an existing one. Lending institutions consequently assumed substantially larger risk in the supplied mortgage packages as well as the individual. As a result, there were several defaults, foreclosures, and price drops.

Today, things are different since mortgage lenders have tighter expectations for buyers. This discrepancy is depicted in the graph below using information from the Mortgage Bankers Association (MBA). The tougher it is to obtain a mortgage, the lower the number. The easier it is, the higher the number.

Unemployment Recovered Faster This Time

The jobless rate has already returned to pre-pandemic levels, despite the fact that the pandemic caused unemployment to soar over the past couple of years (see the blue line in the graph below). During the Great Recession, things were different since many individuals remained unemployed for a much longer (see the red in the graph below):

Here's how this time's swift job recovery benefits the housing sector. Since so many individuals are employed today, there is less chance that homeowners will have financial difficulty and end up in default. This lessens the possibility of more foreclosures entering the market and helps to strengthen the current housing market.

There Are Far Fewer Homes for Sale Today

During the housing crisis, there were also too many properties for sale (many of which were short sales and foreclosures), which led to a sharp decline in property prices. Today, there is a general shortage of inventory, primarily as a result of years of underbuilding homes.

The graph below compares the months' supply of homes available presently to the crash using information from the National Association of Realtors (NAR) and the Federal Reserve. Only 2.6 months' worth of unsold goods are available at the moment. Simply said, there isn't enough supply on the market for home prices to plunge as they did in 2008.

Equity Levels Are Near Record Highs

That low inventory of homes for sale helped keep upward pressure on home 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 CoreLogicexplains

Most homeowners are well positioned to weather a shallow recession. More than a decade of home price increases has given homeowners 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 housing 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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