Why We Aren't Headed for a Housing Crash in 2024
February 29, 2024
Pricing Interest Rates Housing Market Updates
If you’re holding out hope that the housing market will crash and bring home prices back down, here’s a look at what the data shows. And spoiler alert: that’s not in the cards. Instead, experts say home prices are going to keep going up.
Today’s market is very different from before the housing crash 2008. Here’s why.
It’s Harder To Get a Loan Now – and That’s a Good Thing
It was much easier to get a home loan during the years leading up to the 2008 housing crisis than today. Back then, banks had different lending standards, making it easy for anyone to qualify for a home loan or refinance an existing one.
Things are different today. Homebuyers face increasingly higher standards from mortgage companies. The graph below uses data from the Mortgage Bankers Association (MBA) to show this difference. The lower the number, the harder it is to get a mortgage. The higher the number, the easier it is:
As evidenced in this graph, the peak shows that lending standards weren’t as strict as they are now. That means lending institutions took on much more significant risk in both the person and the mortgage products offered around the crash. That led to mass defaults and a flood of foreclosures coming onto the market.
There Are Far Fewer Homes for Sale Today, so Prices Won’t Crash or Decline
The inventory of homes for sale was significantly higher during the housing crisis, many of which were short sales and foreclosures, which caused home prices to fall dramatically. But today, there’s an inventory shortage – not a surplus.
The graph below uses data from the National Association of Realtors (NAR) and the Federal Reserve to show how the months’ supply of homes available now (shown in blue) compares to the crash (shown in red):
Today, unsold inventory sits at just a 3.0-months’ supply. That’s compared to the peak of 10.4 month’s supply in 2008. That means there’s nowhere near enough inventory on the market for home prices to come crashing down like they did back then.
People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s
Leading up to the housing crash in 2008, many homeowners were borrowing against the equity in their homes to finance new cars, boats, and vacations. So, when prices started falling, as inventory rose too high, many homeowners found themselves underwater.
But today, homeowners are a lot more cautious. Even though prices have skyrocketed in the past few years, homeowners aren’t tapping into their equity like they did back then.
Black Knight reports that homeowners have reached an all-time high. This is determined by the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio, also known as the LTV.
As a whole, homeowners have more equity available than ever before. And that’s great! Homeowners are in a much stronger position today than in the early 2000s. That same report from Black Knight goes on to explain:
“Only 1.1% of mortgage holders (582K) ended the year underwater, down from 1.5% (807K) at this time last year.”
And since homeowners are on more solid footing today, they’ll have options to avoid foreclosure. That limits the number of distressed properties coming onto the market. And without a flood of inventory, prices won’t come tumbling down.
Bottom Line
While you may be hoping for something that brings prices down, that’s not what the data tells us will happen. Current research shows that today’s market is nothing like last time.
If you would like to discuss the amount of equity you have in your home, please call/text me at 678-687-4024.