With all the headlines and talk in the media about the shift
in the housing market, you might be thinking this is a housing bubble. It’s
only natural for those thoughts to creep in that make you think it could be a
repeat of what took place in 2008. But the good news is, there’s concrete data
to show why this is nothing like the last time.
There’s Still a Shortage of Homes on the Market Today,
Not a Surplus
For historical context, there were too many homes for sale
during the housing crisis (many of which were short sales and foreclosures),
and that caused prices to fall dramatically. Supply has increased since the
start of this year, but there’s still a shortage of inventory available
overall, primarily due to almost 15 years of underbuilding homes.
The graph below uses data from the National Association of
Realtors (NAR) to show how the months’ supply of homes available now compares
to the crash. Today, unsold inventory sits at just a 3.2-months’ supply at the
current sales pace, which is significantly lower than the last time. There just
isn’t enough inventory on the market for home prices to come crashing down like
they did last time, even though some overheated markets may experience slight
Mortgage Standards Were Much More Relaxed Back Then
During the lead-up to the housing crisis, it was much easier
to get a home loan than it is today. Running up to 2006, banks were creating
artificial demand by lowering lending standards and making it easy for just
about anyone to qualify for a home loan or refinance their current home.
Back then, lending institutions took on much greater risk in
both the person and the mortgage products offered. That led to mass defaults,
foreclosures, and falling prices. Today, things are different, and purchasers
face much higher standards from mortgage companies.
The graph below uses Mortgage Credit Availability Index
(MCAI) data from the Mortgage Bankers Association (MBA) to help tell this
story. In that index, the higher the number, the easier it is to get a
mortgage. The lower the number, the harder it is. In the latest report, the
index fell by 5.4%, indicating standards are tightening.
This graph also shows just how different things are today
compared to the spike in credit availability leading up to the crash. Tighter
lending standards over the past 14 years have helped prevent a scenario that
would lead to a wave of foreclosures like the last time.
The Foreclosure Volume Is Nothing Like It Was During the
Another difference is the number of homeowners that were
facing foreclosure after the housing bubble burst. Foreclosure activity has
been lower since the crash, largely because buyers today are more qualified and
less likely to default on their loans. The graph below uses data from ATTOM
Data Solutions to help paint the picture of how different things are this time:
Not to mention, homeowners today have options they just
didn’t have in the housing crisis when so many people owed more on their
mortgages than their homes were worth. Today, many homeowners are equity rich.
That equity comes, in large part, from the way home prices have appreciated
over time. According to CoreLogic:
“The total average equity per borrower has now reached
almost $300,000, the highest in the data series.”
Rick Sharga, Executive VP of Market Intelligence at ATTOM
Data, explains the impact this has:
“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.”
This goes to show
homeowners are in a completely different position this time. For those facing
challenges today, many have the option to use their equity to sell their house
and avoid the foreclosure process.
If you’re concerned we’re making the same mistakes that led
to the housing crash, the graphs above should help alleviate your fears.
Concrete data and expert insights clearly show why this is nothing like the