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Why A Housing Crash Is Not On The Horizon

San Ramon Home For Sale

You might remember the housing crash in 2008, even if you didn’t own a home at the time. If you’re worried there’s going to be a repeat of what happened back then, there’s good news – the housing market now is different from 2008.

One important reason is there aren’t enough homes for sale. That means there’s an undersupply, not an oversupply like the last time. For the market to crash, there would have to be too many houses for sale, but the data doesn’t show that happening.

Housing supply comes from three main sources:

  • Homeowners deciding to sell their houses
  • Newly built homes
  • Distressed properties (foreclosures or short sales)

Here’s a closer look at today’s housing inventory to understand why this isn’t like 2008.

Homeowners Deciding To Sell Their Houses

Although housing supply did grow a little compared to last year, it’s still low. The current months’ supply is well below the norm. Looking at the latest data compared to 2008, there’s only about a third of that available inventory today.

So, what does this mean? There just aren’t enough homes available to make home 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 happening right now.

Lack Of Newly Built Homes

People are also talking a lot about what’s going on with newly built houses these days, and that might make you wonder if homebuilders are overdoing it.

14 years of underbuilding is a big part of the reason why inventory is so low today. Basically, builders haven’t been building enough homes for years now and that’s created a significant deficit in supply.

Distressed Properties (Foreclosures and Short Sales)

Back 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.

Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. Things have changed a lot since the housing crash. As lending standards got tighter, the number of foreclosures started to go down. And in 2020 and 2021, the combination of a moratorium on foreclosures and the forbearance program helped prevent a repeat of the wave of foreclosures we saw back around 2008.

What This Means for You

Inventory levels aren’t anywhere near where they’d need to be for prices to drop significantly and 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 inventory tells us there’s no crash on the horizon.

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