Decoding the Current Housing Market: Why a Crash Isn't on the Horizon

If you're anticipating a housing market crash to bring down home prices, the data paints a different picture. Contrary to expectations, experts project a continued upward trajectory in home prices, and here's why the current market differs significantly from the pre-2008 housing crisis.

Obtaining a loan is now more challenging, and this shift is beneficial.

Unlike the lax lending standards before the 2008 crisis, today's homebuyers face stricter criteria from mortgage companies. The graph below, utilizing Mortgage Bankers Association (MBA) data, illustrates this change, with a higher number indicating more stringent lending standards.

The peak in the graph highlights that lending standards were less strict back then, leading to increased risk for both individuals and mortgage products. This contributed to widespread defaults and a surge in foreclosures during the crash.

The current market has a scarcity of available homes, preventing a price crash.

In contrast to the housing crisis when an excess of homes, including short sales and foreclosures, flooded the market, today sees an inventory shortage. The graph below, utilizing data from the National Association of Realtors (NAR) and the Federal Reserve, compares the current months' supply of homes (blue) to the crisis period (red).

Presently, unsold inventory stands at a mere 3.0-months' supply, significantly lower than the 10.4-month peak in 2008. This scarcity indicates insufficient inventory to trigger a market crash.

Unlike the early 2000s, homeowners today are more prudent, avoiding excessive borrowing against home equity.

Despite soaring prices, homeowners aren't tapping into their equity as aggressively as before. Black Knight reports that tappable equity has reached an all-time high, indicating that homeowners have substantial equity available.

This responsible approach is reflected in the low percentage of mortgage holders ending the year underwater, down from the previous year. Homeowners' increased financial stability provides them with options to prevent foreclosure, limiting distressed properties from flooding the market and averting a price downturn.

In conclusion

Despite hopes for a market correction, the data indicates a stark contrast to past trends. The current housing market is fundamentally different, showing resilience and stability that suggests a repeat of past crises is unlikely.

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