There’s been some concern lately that the Housing Market is approaching a crash. And given some of the affordability challenges in the housing market, along with a lot of recession talk in the media, it’s easy to understand why that worry has come up. But the data clearly shows today’s market is very different than before the housing crash in 2008. So rest assured, this isn’t a repeat of what happened back then. Here’s why. It’s Harder To Get a Loan Now 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 anyone to qualify for a home loan or refinance an existing one. As a result, lending institutions took on much more significant risk in the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices. Things are different today as purchasers 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. Conversely, the higher the number, the easier it is. Unemployment Recovered Faster This Time While the pandemic caused unemployment to spike over the last couple of years, the jobless rate has already recovered to pre-pandemic levels (see the blue line in the graph below). However, things were different during the Great Recession as a large number of people stayed unemployed for a much more extended period (see the red in the graph below): Here’s how the quick job recovery this time helps the housing market. First, because so many people are employed today, there’s less risk of homeowners facing hardship and defaulting on their loans. This high employment rate helps put today’s housing market on a stronger footing and reduces the risk of more foreclosures coming onto the market. There Are Far Fewer Homes for Sale Today There were also too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Today, there’s an inventory shortage due to years of underbuilding homes. 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 compares to the crash. Today, unsold inventory sits at just a 2.6-months’ supply. There isn’t enough inventory on the market for home prices to come crashing down like they did in 2008. Equity Levels Are Near Record Highs That low inventory of homes for sale helped keep upward pressure on home prices throughout the pandemic. As a result, homeowners today have near-record amounts of equity (see graph below): And, that equity puts them in a much stronger position than the Great Recession. Molly Boesel, Principal Economist at CoreLogic, explains:  “Most homeowners are well positioned to weather a shallow recession. More than a decade of home price increases have given homeowners record amounts of equity, which protects them from foreclosure should they fall behind on their mortgage payments.” Bottom Line The graphs above should ease fears that today’s housing market will crash. However, the most current data clearly shows that today’s market is nothing like last time.  If you’re ready to sell your house, partner with The Aaronson Group.  Call:  949-388-5194 or email: [email protected]