Why We are Not Headed for a Housing Crash

If you are hoping that the housing market will crash and bring home prices back down, here's what the data shows. And spoiler alert: that’s not in the cards. Instead, experts say home prices are going to keep going up.

Today’s market is very different than it was before the housing crash in 2008. Here’s why.

It’s Harder To Get a Loan Now – and That’s Actually a Good Thing

It was much easier to get a home loan prior to the 2008 housing crisis than it is now. Back then, banks had different lending standards, making it easy for almost anyone to qualify for or refinance a home loan.

Things are different today. Homebuyers 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:

a graph showing a line going up

The graph's peak indicates that lending standards were less stringent back then than they are today. That means lending institutions took on significantly more risk in both the individuals and the mortgage products offered during the crash. This resulted in widespread defaults and a flood of foreclosures into the market.

There Are Far Fewer Homes for Sale Today, so Prices Won’t Crash

Because there were so many homes for sale during the housing crisis (many of which were short sales and foreclosures), home prices plummeted dramatically. However, rather than a surplus, there is currently an inventory shortage.

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 (shown in blue) compares to the crash (shown in red):

a graph of a number of people

Today, unsold inventory sits at just a 3.0-months’ supply. That’s compared to the peak of 10.4 month’s supply back in 2008. That means there’s nowhere near enough inventory on the market for home prices to come crashing down like they did back then.

People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s

Before the housing crash, many homeowners borrowed against their home equity to finance new cars, boats, and vacations. So, when prices began to fall and inventory became too high, many of those homeowners found themselves underwater.

But today, homeowners are a lot more cautious. Even though prices have skyrocketed in the past few years, homeowners aren’t tapping into their equity the way they did back then.

Black Knight reports that tappable equity (the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio, or LTV) has actually reached an all-time high:

 a graph of a growing graph

That means, as a whole, homeowners have more equity available than ever before. And that’s great. Homeowners are in a much stronger position today than in the early 2000s. That same report from Black Knight goes on to explain:

“Only 1.1% of mortgage holders (582K) ended the year underwater, down from 1.5% (807K) at this time last year.”

And, because homeowners are in a better financial position today, they will have more options for avoiding foreclosure. That limits the number of distressed properties coming onto the market. And without a flood of inventory, prices will not fall dramatically. 

Bottom Line

While you may be hoping for something that will lower prices, the data suggests otherwise. According to the most recent research, today's market is not the same as it was previously.

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