No Housing Crash In Sight
For those who remember what 2008 was like, whether you lived it first-hand as a homeowner or experience economic pain, you may be fearful of this market. News about an economic slowdown has continued to top headlines across the nation. With the record increases in home prices and such high demand from low rates, people think that housing is the next asset to ‘pop.’ However, there is one clear reason why there is no housing crash in sight.
Inventory: Now Vs. Then
While the feelings of uncertainty and fear might be understandable as dooms-dayers take control of headlines, remember, those are just headlines. The data is very strong in terms of the real estate market and why there is no housing crash in sight. One of the biggest reasons there is no housing crash in sight is because of the undersupply of inventory. Housing supply is significantly lower and more strained than the crash of 2008.
For the market to actually crash, we would need to see some type of oversupply in the market that would keep prices from increasing. As of right now, there is such a tight supply in the real estate market, leading to the price increases. Let us take a deeper look where the inventory is coming from to help prove why there is no housing crash in sight.
No Housing Crash In Sight: Undersupply
Housing supply has been increasing this year, finally. While the housing supply is increasing this year, on a large scale economic trend, we are about 6 years short on necessary housing supply. We currently have around 3 month of inventory on the market, and that is not including all the new construction about to be finished. Based on the latest weekly data, we can see that inventory is up 27.8% compared to the same time last year. This is still down by almost 45% compared to before the pandemic.
Lack Of Foreclosure Increases
One other place besides new builds and currently listed properties to get inventory is distressed properties. These typically come in the form of short sales by banks or foreclosures. Back in the housing crisis, we saw a record increase in the amount of homes foreclosed on. During the financial crisis, there was a multi-year trend of 1-2 million foreclosures on the market. Ever since then, we have seen a rapid drop in the amount of foreclosures. In fact, because of the pandemic, we saw a record low number of foreclosures.
The mortgage forbearance program was something that really kept us from a housing crisis, as millions of homeowners were laid off or furloughed through the pandemic. They were able to avoid foreclosure, and this led to many people being able to have some relief. However, they will be responsible for making up for missed payments, whether it is now or tacked onto the end of their loan. This is likely why we did not see a foreclosure crisis, and the economy was able to keep trucking on due to housing. Remember, each real estate transaction has a massive impact on local and state economies.
Although supply is growing, we are still in a historically tight market. Inventory levels will likely take years to recover to their pre-pandemic levels. Inventory is directly tied to the housing market’s stability, and because there is low inventory, prices will continue to increase.