If you’re anticipating a housing market downturn to cool off soaring home prices, the data suggests otherwise. Contrary to fears, experts project that home prices will continue their upward trajectory. Here’s why the current market landscape differs significantly from the pre-2008 housing crisis era.
- Stricter Loan Standards Are a Boon
Securing a home loan today is far more rigorous than it was leading up to the 2008 crash. Unlike before, banks now adhere to stringent lending standards. The Mortgage Bankers Association (MBA) data indicates a stark contrast in lending practices over time. The graph illustrates a notable increase in lending standards, reflecting a healthier lending environment today. This shift minimizes the risk associated with mortgage products, reducing the likelihood of widespread defaults and foreclosures.
- Inventory Shortage Shields Against Price Plunge
Unlike the surplus of homes during the housing crisis, today’s market faces an inventory shortage. The National Association of Realtors (NAR) and Federal Reserve data reveal a substantial decline in available homes compared to the pre-crisis period. With just a 3.0-months’ supply of unsold inventory, the market lacks the excess supply that triggered the previous crash, thereby safeguarding against a significant price downturn.
- Responsible Home Equity Management Prevails
In the run-up to the housing crisis, homeowners often leveraged their home equity to fund luxury expenses. However, contemporary homeowners exhibit greater prudence. Despite surging home prices, homeowners are refraining from tapping into their equity as liberally as before. According to Black Knight, tappable equity has surged to unprecedented levels, indicating a more financially cautious homeowner population. Moreover, a mere 1.1% of mortgage holders are currently underwater, down from previous years, demonstrating enhanced financial stability among homeowners.
With homeowners in a stronger financial position and fewer distressed properties hitting the market, the risk of a price freefall is significantly mitigated. Consequently, the current market dynamics indicate resilience against a housing crash scenario.
In Conclusion,
While some may anticipate a market correction, the prevailing data suggests otherwise. Today’s housing market operates under vastly different conditions compared to previous crises, indicating a sustained upward trajectory in home prices.