Why This Housing Market Isn’t a 2008 Repeat

Many prospective and current homeowners are discussing their fears of a housing crash in the next year. The crash of 2008 was a distinctive and traumatic catastrophe for millions of people across our country, one that has taken years for recovery. The valid question on most people’s minds is, are we entering another housing disaster

Real estate, financial, and economics professionals are discussing this, too. No one knows the future, yet here are some key points on how our current market, while erratic, is not the same kind of market as the one leading into The Great Recession, and why a housing disaster is not likely.

Strong Labor Market

The US has a strong job market today. Unemployment is at a low, and many job markets, such as construction and manufacturing, are adding jobs. And while there have been layoffs in the tech industry (Amazon, Facebook, Twitter) those workers are being recruited by traditional companies who want access to their talent to modernize and tune up their business models. The food and hospitality industry has employee shortages (leading some shops to to shortened hours or in some cases, closures) and are hiring regularly. In a strong, stable job market, more prospective homebuyers become homeowners.

All About Loans

Prior to the housing crash, many lenders were approving loans without verifying a buyer’s income and some lenders were lending more than the home was worth. As a result, buyers were taking out loans that they could not afford pay back.

Today, lenders depend on more stringent rules to qualify buyers for a mortgage. They verify the value of the home (appraisals), the availability of the buyer’s funds for down-payment, and the proven ability of that buyer to repay the loan.

Low Foreclosure rates

In the Great Recession, with no-money-down options, buyers had nothing to lose and many walked away from their loans and homes. Foreclosures were common. This, along with the strong home construction industry, caused an oversupply of houses on the market.  

Now over a decade removed from the crash, most homeowners have record high equity as well as mortgage payments that they can afford, thanks to refinancing to last year’s record-breaking drop in interest rates. There will be fewer distress sales and foreclosures as buyers have every incentive to keep their homes. This will keep inventory low and values high.

“A lender’s underwriter often ask buyers to provide what seems like an endless amount of verification documents during the loan process. When buyers get frustrated, my response to them is, “be thankful because we are also asking all your neighbors to meet this same criteria to qualify for their mortgage!”

—Marc Garfinkel, Mortgage Consultant, Prosperity Home Loans

Inventory Shortage

Today’s massive inventory shortage all but guarantees the housing market’s health. The Great Recession had an oversupply of homes on the market, with lots of new construction as well as a high inventory of foreclosures (foreclosure rate reached 4.6% during the last housing crisis). New construction is strained this year, due to construction costs and labor shortages. In 2020, we entered the Pandemic in a housing shortage. As far as foreclosures…today’s foreclosure rate is 0.6%, due to high equity earned and affordable interest rates (for new mortgages and refinancing as well) over the last two years.

Not a Repeat

Overall, the basics in todays housing industry do not lead to a repeat of the downturn of 2008. Lending standards have been dramatically modified, leaning toward more conservative and rigorous requirements. And even though the rate of home value increase is slowing (we are back to normal home value increases), home values are continuing to grow, demand is high, and inventory remains low. Ultimately, as long as inventory is low, “the chance of a price crash is very small, due to lack of supply.” Lawrence Yun, chief economist for the National Association of REALTORS®.





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