3 Graphs Showing Why Today’s Housing Market Isn’t Like 2008
You might believe that this is a housing bubble given the media's constant coverage of the housing market's movement. It's only normal for those thoughts to surface, making you believe that what happened in 2008 might be repeated. The good news is that there is hard evidence demonstrating why this time is different from the last.
There’s Still a Shortage of Homes on the Market Today, Not a Surplus
For historical context, during the housing crisis, there were too many properties for sale (many of which were short sales and foreclosures), which led to a sharp decline in property values. Despite an uptick in supply since the beginning of the year, there is still a lack of inventory overall, largely because homes have been underbuilt for over 15 years.
The graph below compares the months' supply of homes available presently to the crash using information from the National Association of Realtors (NAR). At the current sales pace, unsold inventory has a 3.2-month supply, which is much less than it had previously. Even while some overheated markets may see minor drops, there just isn't enough inventory on the market for home prices to plummet as they did the last time.
Mortgage Standards Were Much More Relaxed Back Then
It was considerably simpler to obtain a home loan before the housing crisis than it is right now. Up until 2006, banks were inflating demand by decreasing lending requirements and making it simple for almost anyone to be approved for a home loan or refinance their existing home.
Lending institutions back then assumed significantly more risk in terms of both the applicant and the mortgage products being supplied. As a result, there were several defaults, foreclosures, and price drops. Things are different now, and mortgage providers have considerably stricter requirements for buyers.
The Foreclosure Volume Is Nothing Like It Was During the Crash
The amount of homeowners who were threatened with foreclosure when the housing bubble burst is another difference. Since the crisis, there have been fewer foreclosures, partly because today's purchasers are more qualified and less likely to fail on their loans.
Not to mention, there are solutions available to homeowners today that just weren't available during the housing crisis, when so many individuals owing more on their mortgages than their homes were actually worth. Many homeowners today have significant equity. The way in which property prices have increased over time is a significant contributor to that equity. ContinuityLogic claims:
“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”
Rick Sharga, Executive VP of Market Intelligence at ATTOM Data, explains the impact this has:
“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”
This proves that this time around, homeowners are in a completely different situation. Many people who are struggling today have the choice to sell their homes using the equity they have built up instead of going through the foreclosure process.
The figures above should allay your anxieties if you're worried that we're repeating the blunders that caused the housing catastrophe. Expert analysis and verifiable statistics demonstrate why this time is distinct from the last.
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