Why Today’s Housing Market Is Not About To Crash

It's Harder To Get a Loan Now

It was much easier to get a home loan during the lead-up to the 2008 housing crisis than it is today. Back then, banks had different lending standards. This made it easy for just about anyone to qualify for a home loan or refinance an existing one. As a result, 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.

Things are different today as purchasers face increasingly higher standards from mortgage companies. The graph below uses data from the Mortgage Bankers Association (MBA) to show this difference. The lower the number, the harder it is to get a mortgage. The higher the number, the easier it is.

Unemployment Recovered Faster This Time

The pandemic caused unemployment to spike over the last couple of years. Now, the jobless rate has already recovered back to pre-pandemic levels (see the blue line in the graph below). Things were different during the Great Recession as a large number of people stayed unemployed for a much longer period of time (see the red in the graph below):

Here's how the quick job recovery this time helps the housing market. Because so many people are employed today, there's less risk of homeowners facing hardship and defaulting on their loans. This helps put today's market on a stronger footing and reduces the risk of more foreclosures coming onto the market.

There Are Far Fewer Homes for Sale Today

There were also too many homes for sale during the housing crisis, and that caused prices to fall dramatically. Today, there's a shortage of inventory available overall, primarily due to years of underbuilding homes.

The graph below uses data from the National Association of Realtors (NAR) and the Federal Reserve to show how the months' supply of homes available now compares to the crash. Today, unsold inventory sits at just a 2.6-month supply. Practically speaking, there just isn't enough inventory on the market for home prices to come crashing down like they did in 2008.

Equity Levels Are Near Record Highs

That low inventory of homes for sale helped keep upward pressure on home prices over the course of the pandemic. As a result, homeowners today have near-record amounts of equity (see graph below):

And, that equity puts them in a much stronger position compared to the Great Recession. Molly Boesel, Principal Economist at CoreLogic, explains:

"Most homeowners are well positioned to weather a shallow recession. More than a decade of home price increases has given homeowners record amounts of equity, which protects them from foreclosure should they fall behind on their mortgage payments."

The graphs above should assure you that today's housing market is not about to crash. The most current data clearly shows that today's market is nothing like it was last time. While banks have tighter lending standards than in 2008 most home buyers can secure financing.

As a consumer, it’s important for you to work with a reputable mortgage company like The Byron Mortgage Team. We stand ready to pre-qualify you for a mortgage and shepherd you through your home-buying journey. Let’s connect and get you into your new home.