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Why Todays Housing Market Is Not About To Crash

Why Todays Housing Market Is Not About To Crash Simplifying The Market

Theres been some concern lately that the housing market is headed for a crash. And given some of the affordability challenges in the housing market, along with a lot of recession talk in the media, its easy enough to understand why that worry has come up.

But the data clearly shows todays market is very different than it was before the housing crash in 2008. Rest assured, this isnt a repeat of what happened back then. Heres why.

Its 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 differentlending standards, making 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

While the pandemic caused unemployment to spike over the last couple of years, 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):

Heres how the quick job recovery this time helps the housing market. Because so many people are employed today, theres less risk of homeowners facing hardship and defaulting on their loans. This helps put todays housing market on 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 (many of which were short sales and foreclosures), and that caused prices to fall dramatically.Today, theres ashortage of inventoryavailable overall, primarily due to years of underbuilding homes.

The graph below usesdatafrom theNational 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-months supply. There just isnt enough inventory on the market forhome pricesto 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.

SBottom Line

The graphs above should ease any fears you may have that todays housing market is headed for a crash. The most current data clearly shows that todays market is nothing like it was last time.

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