Why the housing market is not about to crash today

Recently, there’s been concern that the housing market will crash. It’s understandable that people are worried about the housing market’s affordability, especially with all the recession talk in the news. But the data shows the market today is completely different from what it was in 2008 before the housing crisis. This is not a repeat of the 2008 housing crash. It’s harder to get a loan nowIt was easier to get a mortgage in the years leading up to the 2008 housing crash than it is today. The banks back then had different lending criteria, which made it easier for anyone to qualify for either a new home loan or a refinance of an existing one. Lending institutions assumed a greater risk, both in terms of the mortgage products and the people who were offered. This led to mass foreclosures and falling prices. Today, mortgage companies are imposing higher standards on buyers. This difference is shown in the graph below, which uses data from Mortgage Bankers Association. The lower the number the harder it is for you to get a loan. Unemployment recovered faster this timeWhile the pandemic caused the unemployment rate to spike in the last two years, it has already recovered to pre-pandemic rates (see the blue line on the graph below). The Great Recession was different as many people were unemployed for much longer periods of time. (See the red line in the graph below). Here’s how this quick job recovery helps the housing market. There is less risk that homeowners will default on their loans because so many people have jobs today. There are far fewer homes for sale today. During the housing crisis, there were too many houses for sale (many were short sales and foreclosed properties), which caused prices to drop dramatically. There is a shortage of housing inventory today, mainly due to years of underbuilding. The graph below compares the months’ supply to the crash using data from the National Association of Realtors and the Federal Reserve. Unsold inventory is at 2.6 months’ supply today. Equity levels are near record highs. This low inventory of homes on the market helped keep home prices rising over the course the pandemic. Homeowners today have near-record levels of equity (see graph):And that equity puts them much stronger than they were during the Great Recession. Molly Boesel explains that most homeowners are well-positioned to weather even a shallow recession. Homeowners have accumulated record amounts of equity over the past decade, which will protect them from foreclosure if they fall behind with their mortgage payments. The most recent data shows that the current market is not like it was before.

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