The housing crash of 2008 was a nightmare that many people never want to experience again. The thought of losing your home, your savings, and your sense of security was a very real fear for many back then. However, if you’re worried about a repeat of the past, there’s good news – the housing market now is different from 2008, and we’re here to tell you why.
One important reason why the housing market is different now than in 2008 is the supply and demand ratio. Back then, there was an oversupply of homes on the market, and home prices were falling due to the high inventory. Homeowners were losing their homes, and banks were foreclosing on properties left and right. However, today’s housing market is experiencing a different scenario. The current market shows an undersupply, with not enough homes for sale. For the market to crash, there would have to be too many houses for sale, but the data doesn’t show that happening.
Homeowners making the decision to sell their homes
Even though it increased from the previous year, the housing supply is still very limited. The amount available in the current months is below average. An easier way to see this is in the graph below. There is only about a third of that available inventory today, according to the most recent data (shown in green), compared to 2008 (shown in red).
This indicates that there simply aren’t enough homes on the market to cause a decline in home values. It would take a lot more people selling their homes with very few buyers than there are right now in order to have a repeat of 2008, which is not the case.
Brand-New Residences
You might wonder if homebuilders are overdoing it given how frequently people discuss what’s happening with recently constructed homes these days. The chart below displays the volume of brand-new homes constructed over the previous 52 years.
A significant portion of the reason why inventory is currently so low is the 14 years of underbuilding (illustrated in red). Basically, there has been a significant supply deficit because builders haven’t been producing enough homes for years.
Although the last blue bar on the graph indicates that is increasing and is on track to once again reach the long-term average, it won’t immediately result in an oversupply. That’s because the gap is too wide to fill. Additionally, unlike during the housing bubble, builders are being deliberate about not overbuilding homes.
Foreclosures and short sales classified as distressed properties
Distressed properties, including short sales and foreclosures, are the very last sources of inventory that can exist. Due to lax lending standards during the housing crisis, many people were able to obtain home loans they couldn’t really afford. This resulted in a wave of foreclosures.
Since lending requirements are much stricter now, there are more qualified buyers and significantly fewer foreclosures. The graph below illustrates how things have changed since the housing crash using data from the Federal Reserve.
This graph demonstrates how the number of foreclosures started to decline as lending requirements tightened and buyers became more qualified. A forbearance program and a foreclosure moratorium together helped prevent a wave of foreclosures similar to the one we saw around 2008 in 2020 and 2021.
The forbearance program changed the game by giving homeowners options they had never had before for things like loan deferrals and modifications. According to data on the program’s effectiveness, four out of every five homeowners who exit forbearance have either paid their debt in full or have established a repayment schedule to prevent foreclosure. These are a few of the main reasons why a flood of foreclosed properties won’t hit the market.
How You Should Interpret This
Inventory levels are nowhere near what they would need to be for prices to drop sharply and the housing market to collapse. Bankrate predicts that won’t change anytime soon, especially given how strong buyer demand is right now:
“This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.”
The housing market now is different from 2008, and there are good reasons why. With an undersupply of homes for sale and a different type of inventory, the housing market remains strong in 2021. The global pandemic is influencing home buying trends, and working from home and remote learning have changed home buyers’ needs. With strict lending regulations, today’s lending industry is more stable than in 2008. While no one can predict the future housing market with certainty, what we can say is that the current market conditions provide a sturdy foundation for a stable housing market, and buyers and sellers can rest a bit easier than in 2008.