With all the headlines and talk in the media about the shift in the housing market, you might be thinking this is a housing bubble. It’s only natural for those thoughts to creep in that make you think it could be a repeat of what took place in 2008. But the good news is, there’s concrete data to show why this is nothing like the last time.
For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Supply has increased since the start of this year, but there’s still a shortage of inventory available overall, primarily due to almost 15 years of underbuilding homes.
The graph below uses data from the National Association of Realtors (NAR) to show how the months’ supply of homes available now compares to the crash. Today, unsold inventory sits at just a 3.2-months’ supply at the current sales pace, which is significantly lower than the last time. There just isn’t enough inventory on the market for home prices to come crashing down like they did last time, even though some overheated markets may experience slight declines.
During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home.
Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices. Today, things are different, and purchasers face much higher standards from mortgage companies.
The graph below uses Mortgage Credit Availability Index (MCAI) data from the Mortgage Bankers Association (MBA) to help tell this story. In that index, the higher the number, the easier it is to get a mortgage. The lower the number, the harder it is. In the latest report, the index fell by 5.4%, indicating standards are tightening.
This graph also shows just how different things are today compared to the spike in credit availability leading up to the crash. Tighter lending standards over the past 14 years have helped prevent a scenario that would lead to a wave of foreclosures like the last time.
Another difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been lower since the crash, largely because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help paint the picture of how different things are this time:
Not to mention, homeowners today have options they just didn’t have in the housing crisis when so many people owed more on their mortgages than their homes were worth. Today, many homeowners are equity rich. That equity comes, in large part, from the way home prices have appreciated over time. According to CoreLogic:
“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 goes to show homeowners are in a completely different position this time. For those facing challenges today, many have the option to use their equity to sell their house and avoid the foreclosure process.
If you’re concerned we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your fears. Concrete data and expert insights clearly show why this is nothing like the last time.
Stay up to date on the latest real estate trends.
Countless people have set out on the exciting journey of homeownership. Ask around and you’ll find the vast majority are thankful they took the leap and bought a home.… Read more
The median single-family home price rose 14% over the past three months. Condo prices have trended horizontally throughout 2023. Minor price changes are typical in the… Read more
The median single-family home and condo prices declined in the East Bay month over month. Year over year, prices in Alameda increased 2% for single-family homes and 1%… Read more
Looking forward, experts project home prices will continue to rise next year, but not quite as much as they did this year. Even though the expected rise in 2024 isn't … Read more
For more than 79 years, Veterans Affairs (VA) home loans have helped millions of veterans buy their own homes. If you or someone you care about has served in the milit… Read more
Are you dreaming of buying your own home and wondering about how you’ll save for a down payment? You're not alone. Some people think about tapping into their 401(k) sa… Read more
ADUs allow loved ones to live together while having separate spaces. That means you can enjoy each other’s company and help each other out with things like childcare, … Read more
Overall, median prices have trended horizontally over the past 12 months. Considering the rapidly rising interest rates, homes have maintained their value well. Active… Read more
Year over year, single-family home and condo prices were up across the East Bay. Contra Costa condo prices rose most significantly, up 18% since last September. We exp… Read more
You’ve got questions and we can’t wait to answer them.