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Pricing, Interest Rates, Housing Market Updates

WHY WE AREN'T HEADED FOR A HOUSING CRASH

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If you’re holding out hope that the housing market is going to 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 than it was before the housing crash in 2008.
Here’s why.

IT’S HARDER TO GET A LOAN NOW – AND THAT’S ACTUALLY A GOOD THING

It was much easier to get a home loan during the lead-up to the 2008 housing
crisis than it is today. Back then, banks had different lending standards,
making it easy for just about 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:

The peak in the graph shows that, back then, lending standards weren’t as strict
as they are now. That means lending institutions took on much greater 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

Because there were too many homes for sale during the housing crisis (many of
which were short sales and foreclosures), that 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 back 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

Back in the lead up to the housing crash, many homeowners were borrowing against
the equity in their homes to finance new cars, boats, and vacations. So, when
prices started to fall, as inventory rose too high, many of those 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
the way they did back then.

Black Knight reports that tappable equity (the amount of equity available for
homeowners to access before hitting a maximum 80% loan-to-value ratio, or LTV)
has actually reached an all-time high:

That means, 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 is going to happen. The most current research clearly shows
that today’s market is nothing like it was last time.

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www.keepingcurrentmatters.com Open in urlscan Pro 67.43.13.186 Public Scan

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www.keepingcurrentmatters.com Open in urlscan Pro
67.43.13.186 Public Scan

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