Why Today’s Housing Market Isn’t Headed for a Crash

67% of Americans say they believe that a housing market crash is likely in the next three years. With all the talk in the media lately about shifts in the housing market, it is understandable why so many people feel this way. But the reality is that the likelihood of a crash any time soon is very unlikely. Current data shows today’s market is nothing like it was before the housing crash in 2008.

Back Then, Mortgage Standards Were Less Strict

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. 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 an existing one. Mortgage defaults were inevitable as many buyers did not have sufficient income to afford their payments. That led to mass defaults, foreclosures, and falling prices. Today, things are different, and purchasers face much higher standards from mortgage lenders.

Lending Regulations Remain Stable

Things are very different today compared to the spike in credit availability leading up to the housing crash in 2008.

Tighter lending standards have helped prevent a situation that could lead to a wave of foreclosures like the last time.

Foreclosure Volume Has Declined a Lot Since the Crash

Another difference is the number of homeowners that were facing foreclosure when the housing bubble burst. Foreclosure activity has been lower since the crash, largely because buyers have been more qualified over the past few years and are less likely to default on their loans. The days of zero down or “stated income” loans virtually disappeared after the 2008 crash, and as a result, most homeowners have considerable equity in their homes.

The graph at the top of the page uses data from ATTOM to show the difference between last time and now. The red bars indicate the volume of foreclosure starts in the last housing recession, while the blue bars show the volume of foreclosure starts in more recent times.

So even though foreclosures tick up slightly, the total number is still very low. And most experts don’t expect foreclosures to go up drastically like they did following the crash in 2008.

The Supply of Homes for Sale Today Is More Limited

There were many homes for sale during the housing crisis (many of which were short sales and bank owned foreclosures), causing prices to fall dramatically. Supply has increased since the start of this year, but there’s still a serious shortage of inventory available overall, primarily due to years of underbuilding homes.

Today, unsold inventory nationwide sits at just 2.7-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 declines.

Note that this is just the picture nationwide. In our area, the picture is even more encouraging. The volume of foreclosures in the East Bay neighborhoods is negligible and the shortage of homes for sale means that home values will remain strong with many economists predicting small increases in value through 2023.