Today’s Housing Market

With media outlets constantly barraging your inbox, timelines, and new feeds with how terrible the economy and housing market is, you might think that today’s market is just as bad as 2008. However, today’s housing market is no where near as bad as what we saw in 2008. This is due to a large amount of different reasons, most importantly leading standards being improved and the supply of homes being low. For those who lived through the worst of the housing market crash in 2008, there is reasonable assumptions to believe something that severe might be around the corner. However, the good news is there is some solid concrete data showing why now is different than 2008.

Why Now Is Different

The number one driver in the home price skyrocket we have seen is the shortage of homes available. Builders are still recovering from the 2008 housing market crash, and are building lower numbers than the historical average every year. As this began to return to normal, finally, after over a decade, the 2022 rate increases has led to record low builder sentiment. This has led to the similar problem that we have seen over the last few decades, builders not wanting to build. Because of builder sentiment reaching record lows this year, the supply of homes will continue to remain lower coming into the next few years.

Today's Housing Market Supply

The supply of houses for sale is much lower now than in 2008

During the housing crisis, we saw a record number of homes available for sale. That is not the case in this market. We are struggling to reach a neutral market in terms of housing supply. Supply has increased since the beginning of the year, but new construction sales have decreased tremendously over the past year. There is still a shortage of homes, as we are still considered to be in a seller’s market. Until the inventory of homes for sale is up to about 6 months, we will stay in a seller’s market.

Today’s Housing Market’s Lending Standards

Mortgage standards were also a huge issue in the 2008 housing crisis. Over the years, we have seen an improvement in the lending practices and standards. Running up in the housing crisis, banks were creating artificial demand by lowering lending standards and allowing multiple loans for individual people. The loans that were made famous in the housing crisis were called NINJA loans. The no income, no jobs, and no asset loans were one of the largest problems in the housing crisis.

Back during the housing crisis, lending institutions were taking on massive risks in both individual and mortgage products. This was the driving cause in the mass defaults of personal loans, foreclosures, and falling prices. Lenders today face much more strenuous lending standards and mortgage companies face push-back if anything seems like 2008. The graph below uses the Mortgage Credit Availability Index data from Mortgage Bankers Association showing the true story. In the graph, the higher number, the easier it is to get a mortgage. The lower number, the harder it is. In the latest report, the index fell almost 6%, indicating the tightening of lending standards.

Today's Housing Market Lending Standards

Lending standards are now much tighter than they were in 2008.

Foreclosures Are Low

Foreclosures were a thing of commonplace in the 2008 housing crisis. In today’s market, we see a slight uptick in foreclosures, but not anything above historical averages. The amount of foreclosures remains tremendously low, mostly because of the lack of adjustable rate mortgages. People who purchased their homes in the last two years were able to capitalize on record low mortgage rates. This allowed these buyers to lock in a monthly payment that will not increase even as mortgage rates increase.

No Housing Crash In Sight

There is likely no housing crash in sight as foreclosures continue to remain low

Not to mention, middle class Americans are sitting on record wealth. Over the past few years, we have seen the largest increase in wealth per family for middle class Americans that we have ever seen. While this trend has started reversing since Q3 2021, it is still much higher than before the pandemic. According to CoreLogic,

“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”

And according to Rick Sharga, executive VP of Market Intelligence at ATTOM Data,

“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”