You probably remember the housing crisis in 2008, even if you didn’t own a home at the time. That crash impacted the lives of countless people, and many now live with the worry that something like that could happen again.
But rest easy, because things are different than they were back then. As Business Insider says:
“Though many Americans believe the housing market is at risk of crashing, the economists who study housing market conditions overwhelmingly do not expect a crash in 2024 or beyond.”
Here’s why experts are so confident. For the market (and home prices) to crash, there would have to be too many houses for sale, but the data doesn’t show that’s happening. Right now, there’s an undersupply, not an oversupply like the last time – and that’s true even with the inventory growth we’ve seen this year. You see, the housing supply comes from three main sources:
Homeowners deciding to sell their houses
Distressed properties (foreclosures or short sales)
And if we look at those three main inventory sources, it’s clear this isn’t like 2008.
Homeowners Deciding to Sell Their Houses
Although the supply of existing homes is up compared to this time last year, it’s still low overall. And while this varies by local market, nationally, the current month’s supply is well below the norm, and even further below what we saw during the crash.
If you look at the latest data (shown in green), compared to 2008 (shown in red), we only have about a third of that available inventory today.
What This Means for Homeowners
There just aren’t enough homes available to make values drop. To have a repeat of 2008, there’d need to be a lot more people selling their houses with very few buyers, and that’s not the case right now.
The Impact on Home Prices
This low inventory means that home prices are likely to remain stable or even increase. Without a significant rise in the number of homes for sale, it’s difficult to see how prices could drop significantly.
National vs. Local Markets
It’s important to remember that while the national market shows low inventory, this can vary by local market. However, overall, the trend is that there are not enough homes to meet demand.
The Historical Context of Construction
The graph below uses data from the Census to show the number of new houses built over the last 52 years. The orange on the graph shows the overbuilding that happened in the lead-up to the crash. And, if you look at the red in the graph, you’ll see that builders have been underbuilding pretty consistently since then.
Catching Up on Construction
There’s just too much of a gap to make up. Builders aren’t overbuilding today, they’re catching up. A recent article from Bankrate says:
“What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale.”
Future Prospects for Homebuilding
Given the cautious approach of builders, it’s unlikely that we will see an oversupply of new homes in the near future. This careful pacing helps maintain a balanced market.
Distressed Properties (Foreclosures and Short Sales)
The last place inventory can come from is distressed properties, including short sales and foreclosures. During the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to get a home loan they couldn’t truly afford.
Tighter Lending Standards
Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The next graph uses data from ATTOM to show how things have changed since the housing crash.
The Decline in Foreclosures
This graph makes it clear that foreclosures started to decrease as lending standards got tighter and buyers became more qualified. In 2020 and 2021, a moratorium on foreclosures (shown in black) and the forbearance program helped prevent a repeat of the wave of foreclosures we saw when the market crashed.
Current Foreclosure Trends
While you may see headlines that foreclosure volume is ticking up – remember, that’s only compared to recent years when very few foreclosures happened. We’re still below the normal level we’d see in a typical year.
The Overall Picture of Housing Inventory
Inventory levels aren’t anywhere near where they’d need to be for prices to drop significantly and the housing market to crash. As Forbes explains:
“As already-high home prices continue trending upward, you may be concerned that we’re in a bubble ready to pop. However, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.”
Expert Opinions
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:
“We will not have a repeat of the 2008–2012 housing market crash. No risky subprime mortgages could implode, nor the combination of a massive oversupply and overproduction of homes.”
Understanding the Current Market
The market doesn’t have enough available homes for a repeat of the 2008 housing crisis – and there’s nothing that suggests that will change anytime soon. That’s why housing experts and inventory data tell us there isn’t a crash on the horizon.
What This Means for Buyers
For buyers, this means that the market remains competitive. It’s essential to work with a knowledgeable realtor who can help you navigate the current conditions and find the right home for you.
Implications for Sellers
Sellers can feel more confident that their home will retain its value. With fewer homes on the market, there’s less competition, which can lead to quicker sales and potentially higher prices.
Advice for Investors
Real estate investors should continue to monitor market trends closely. While a crash is unlikely, staying informed about inventory levels and regional variations can help make smarter investment decisions.
Bottom Line
The current housing market is fundamentally different from what we saw in 2008. Inventory levels are low, lending standards are tighter, and new home construction is paced cautiously. This combination of factors makes a crash highly unlikely.
I have over 200 educational blogs on my website covering real estate trends and news. These blogs can answer almost every question you may have. If you have any questions that are not addressed in my blogs or on my website, feel free to contact me. I’m here to provide you with the answers you need.
Source: mykcm.com
