Why Today’s Housing Market Isn’t Like 2008

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, Not a surplus

Back in 2008, there were too many homes for sale during the housing crisis. Many of those homes were short sales and foreclosures. This caused prices to drop dramatically. Now, on the other hand, supply has increased since the beginning of 2022, but not to nearly the levels we saw nearly 15 years ago. Admittedly, this is mostly due to 15 years of under-building homes. 

According to the National Association of Realtors, unsold homes sit at just a little over 3 months supply at the current pace, which is significantly lower than in 2008. The truth is, there just isn’t enough inventory on the market for home prices to crash like they did then, despite a slight decline in price in some places like St. George.

mortgage standards were far more loose than today

Right before the housing bubble burst, it was a lot easier to get a home loan than it is today. Just going back to 2006, two years before the crash, lenders were creating artificial demand by lowering standards for lending and making it easy for just about anyone to qualify for a mortgage. 

Back then, banks took on a lot more risk in both the borrower and the mortgage offered. This led to multiple people defaulting, going into foreclosure, and dramatically falling prices. Today, things are different. Buyers face much higher standards from banks and other lenders.

Data from the Mortgage Bankers Association help tell the story. Basically, the higher the credit score, the easier it is to get a loan. The lower the score, the harder it is. The latest report shows that the index fell by 5.4%. In other words, standards are much higher than before. This helps prevent the scenario that led to people foreclosing on their homes like last time.

foreclosures are not even close

Another difference is the number of homeowners that were facing foreclosure after the housing bubble burst. This kind of activity has been lower than even before the crash, mostly because buyers today are far more qualified than they were then. 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.

botton line

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 last time.