Why We Aren’t Headed for a Housing Crash

<article class="post-954767 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-954767"><span class="entry-date">February 29, 2024</span><div class="entry-header center-block text-center"><h1 class="entry-title">Why We Aren't Headed for a Housing Crash</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Why+We+Aren%27t+Headed+for+a+Housing+Crash&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fwhy-we-arent-headed-for-a-housing-crash%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="Why We Aren't Headed for a Housing Crash Simplifying The Market" decoding="async" loading="lazy" src="https://media.agentaprd.com/sites/222/20240229-Why-We-re-Not-Headed-for-a-Housing-Crash.webp" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width="358"/>
<p>If you’re holding out hope that the housing market is going to crash and bring <a href="https://www.simplifyingthemarket.com/2024/02/15/dont-let-the-latest-home-price-headlines-confuse-you/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">home prices</a> back down, here’s a look at what the data shows. And spoiler alert: that’s not in the cards. Instead, experts say <a href="https://www.simplifyingthemarket.com/2024/02/22/expert-home-price-forecasts-for-2024-revised-up/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">home prices</a> are going to keep going up.</p>
<p><strong>Today’s market is very different than it was before the housing crash in 2008. Here’s why.</strong></p>
<h4><strong>It’s Harder To Get a Loan Now – and That’s Actually a Good Thing</strong></h4>
<p>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 different lending standards, making it easy for just about anyone to qualify for a home loan or refinance an existing one.</p>
<p>Things are different today. Homebuyers face increasingly higher standards from mortgage companies. The graph below uses <a href="https://www.mba.org/news-and-research/newsroom/news/2024/02/09/mortgage-credit-availability-increased-in-january" rel="noopener noreferrer" target="_blank">data</a> from the <em>Mortgage Bankers Association</em> (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:</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240228/20240229-Lending-Regulations-Are-Steady.png" rel="noopener noreferrer" target="_blank"><img alt="a graph showing a line going up" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240228/20240229-Lending-Regulations-Are-Steady.png"/></a></p>
<p></p>
<p>The peak in the graph shows that, back then, lending standards weren’t as strict as they are now. That means lending institutions took on much greater risk in both the person and the mortgage products offered around the crash. That led to mass defaults and a flood of <a href="https://www.simplifyingthemarket.com/2024/01/31/foreclosure-activity-is-still-lower-than-the-norm/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">foreclosures</a> coming onto the market.</p>
<h4><strong>There Are Far Fewer Homes for Sale Today, so Prices Won’t Crash</strong></h4>
<p>Because there were too many homes for sale during the housing crisis (many of which were short sales and <a href="https://www.simplifyingthemarket.com/2024/02/02/theres-no-foreclosure-wave-in-sight-infographic/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">foreclosures</a>), that caused home prices to fall dramatically. But today, there’s an inventory shortage – not a surplus.</p>
<p>The graph below uses data from the <a href="https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales" rel="noopener noreferrer" target="_blank"><em>National Association of Realtors</em></a> (NAR) and the <a href="https://fred.stlouisfed.org/series/HOSSUPUSM673N" rel="noopener noreferrer" target="_blank"><em>Federal Reserve</em></a> to show how the months’ supply of homes available now (<em>shown in blue</em>) compares to the crash (<em>shown in red</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240228/20240229-Housing-Supply-Is-Lower-Than-Before.png" rel="noopener noreferrer" target="_blank"><img alt="a graph of a number of people" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240228/20240229-Housing-Supply-Is-Lower-Than-Before.png"/></a></p>
<p></p>
<p>Today, unsold inventory sits at just a <a href="https://cdn.nar.realtor/sites/default/files/documents/ehs-01-2024-overview-2024-02-22.pdf" rel="noopener noreferrer" target="_blank">3.0-months’</a> supply. That’s compared to the peak of 10.4 month’s supply back in 2008. That means there’s nowhere near enough inventory on the market for home prices to come crashing down like they did back then.</p>
<h4><strong>People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s</strong></h4>
<p>Back in the lead up to the housing crash, many homeowners were borrowing against the equity in their homes to finance new cars, boats, and vacations. So, when prices started to fall, as inventory rose too high, many of those homeowners found themselves underwater.</p>
<p>But today, homeowners are a lot more cautious. Even though prices have skyrocketed in the past few years, homeowners aren’t tapping into their equity the way they did back then.</p>
<p><em>Black Knight</em> <a href="https://www.blackknightinc.com/wp-content/uploads/2024/02/ICE_MM_FEB2024_Report.pdf" rel="noopener noreferrer" target="_blank">reports</a> that tappable equity (the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio, or LTV) has actually reached an all-time high:</p>
<p> <a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240228/20240229Tappable-Equity-at-an-All-Time-High.png" rel="noopener noreferrer" target="_blank"><img alt="a graph of a growing graph" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240228/20240229Tappable-Equity-at-an-All-Time-High.png"/></a></p>
<p></p>
<p>That means, as a whole, homeowners have more equity available than ever before. And that’s great. Homeowners are in a much stronger position today than in the early 2000s. That same report from <em>Black Knight </em>goes on to <a href="https://www.blackknightinc.com/wp-content/uploads/2024/02/ICE_MM_FEB2024_Report.pdf" rel="noopener noreferrer" target="_blank">explain</a>:</p>
<blockquote><p><em>“Only 1.1% of mortgage holders (582K) ended the year underwater, down from 1.5% (807K) at this time last year.”</em></p></blockquote>
<p>And since homeowners are on more solid footing today, they’ll have options to avoid foreclosure. That limits the number of distressed properties coming onto the market. And without a flood of inventory, prices won’t come tumbling down. </p>
<h3>Bottom Line</h3>
<p>While you may be hoping for something that brings prices down, that’s not what the data tells us is going to happen. The most current research clearly shows that today’s market is nothing like it was last time.</p>
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