Concerns have arisen about a possible crash in the housing market, given the challenges in housing affordability and talk of a recession in the media. However, data indicates that today’s market is significantly different from the pre-2008 housing crisis.
One significant difference is that it is now more challenging to obtain a home loan. Mortgage companies have higher lending standards, making it harder for anyone to qualify for a home loan or refinance an existing one. This is in contrast to the pre-crisis period, where banks had lower lending standards and took on more risk in the mortgage products offered. As a result, the number of defaults, foreclosures, and falling prices increased.
Another significant difference is that unemployment has recovered faster this time. Despite the pandemic causing a temporary spike in unemployment, the jobless rate has already returned to pre-pandemic levels. During the Great Recession, many people remained unemployed for a more extended period, which increased the risk of homeowners facing hardship and defaulting on their loans. In contrast, with more people employed today, the risk of foreclosures decreases, which helps put the current housing market on firmer ground.
Moreover, there is a shortage of inventory available now, primarily due to years of underbuilding homes. In contrast, during the housing crisis, there were too many homes for sale, which caused prices to fall sharply. Today, unsold inventory sits at just a 2.6-months’ supply. Therefore, there is not enough inventory for home prices to plummet as they did in 2008.
Finally, homeowners today have near-record amounts of equity, which puts them in a much stronger position compared to the Great Recession. As a result of the pandemic, the low inventory of homes for sale kept upward pressure on home prices, leading to near-record amounts of equity for homeowners. This equity will protect them from foreclosure should they fall behind on their mortgage payments.
In conclusion, the current housing market is not headed for a crash like the one experienced in 2008. The data suggests that the market is on a much stronger footing today, and homeowners are well-positioned to weather a shallow recession.
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