With concerns lingering about a potential housing market crash, it's essential to examine the current landscape and understand how it differs from the conditions that led to the 2008 crisis.
- Stricter Loan Standards: One significant distinction between the pre-crash era and today's market is the tightening of loan standards. Mortgage companies have implemented more rigorous lending practices, making it more challenging for individuals to qualify for loans or refinance existing ones. This change reduces the risk associated with risky mortgage products and fosters a more stable market environment.
- Swift Unemployment Recovery: While the COVID-19 pandemic caused a temporary surge in unemployment rates, the job market has exhibited resilience and bounced back swiftly. Comparing the quick recovery of today's job market to the prolonged unemployment observed during the Great Recession emphasizes the fundamental differences between the two periods. This strong job market recovery provides stability and mitigates the risk of homeowners facing financial hardships and defaulting on their mortgages.
- Limited Inventory: Today's housing market faces a shortage of available homes for sale, primarily due to years of underbuilding. Unlike the housing crisis when an oversupply of homes flooded the market, the graph below highlights the significant decrease in the months' supply of homes available now compared to the crash. The scarcity of inventory supports the current home prices and diminishes the likelihood of a dramatic decline in values.
- High Equity Levels: The limited housing inventory during the pandemic resulted in upward pressure on home prices. As a consequence, homeowners today enjoy near-record levels of equity. This increased equity acts as a buffer, safeguarding homeowners from the risk of foreclosure even in times of economic uncertainty. Molly Boesel, Principal Economist at CoreLogic, affirms that the substantial equity accumulated by homeowners over the past decade further protects them from the severe consequences experienced during the Great Recession.
IN SUMMARY
It is crucial to understand that today's housing market is vastly different from the conditions preceding the 2008 crisis. With stricter loan standards, swift unemployment recovery, limited inventory, and high equity levels, the data and expert insights provide reassurance that a housing market crash is unlikely. As you navigate the real estate landscape, rely on the expertise of Anthony Spitaleri and his team to guide you with confidence and make informed decisions about your homeownership goals.
