Why the 2023 Housing Market is Nothing Like 2008: Insights from Realtor Jenna Pope

Hey there, fellow homeowners and prospective buyers! It’s your friendly realtor, Jenna Pope, back with some crucial insights about the housing market. Today, let’s take a deep dive into one question that often pops up in conversations: Are we headed for another housing crash, reminiscent of the fateful year 2008? I’m here to bring you some good news—our current housing market is vastly different from the one that brought about the financial turmoil of 2008.

Limited Housing Supply: The Game-Changer

One of the most significant distinctions between then and now is the state of our housing supply. In 2008, we faced an oversupply of homes flooding the market, which ultimately led to the crisis. But today, we’re dealing with the opposite situation—an undersupply of homes. And that’s a key factor in preventing history from repeating itself.

Let’s break down where our housing supply is coming from:

1. Homeowners Deciding to Sell Their Houses

While the housing supply has grown compared to last year, it’s still relatively low. The current months’ supply is below what’s considered normal. To paint a clearer picture, let’s look at a graph comparing today’s data (in green) with 2008 (in red). The difference is stark—today’s available inventory is only about a third of what it was during the last crisis.

So, what does this mean for you? It means there aren’t enough homes available to trigger a significant drop in home values. To relive the 2008 scenario, we’d need to see a massive influx of home sellers and a shortage of buyers, which isn’t happening right now.

2. Newly Built Homes

The buzz surrounding newly built homes might make you wonder if homebuilders are overdoing it. But let’s put things in perspective. Over the past 52 years, we’ve experienced 14 years of underbuilding, as indicated by the red bars in the graph below:

This underbuilding trend is a significant reason why our current housing supply is so low. Builders haven’t been constructing enough homes for quite some time, resulting in a substantial deficit.

While construction is picking up now and heading toward the long-term average, it won’t lead to an oversupply overnight. The gap is too substantial to bridge, and builders are being cautious not to repeat the mistakes of the past by overbuilding.

3. Distressed Properties (Foreclosures and Short Sales)

Remember the flood of foreclosures during the housing crisis? That was largely due to loose lending standards that allowed many unqualified buyers to obtain home loans.

Today, lending standards are far stricter, resulting in a higher number of qualified buyers and fewer foreclosures. The graph below, using data from the Federal Reserve, paints a clear picture of this shift:

As lending standards tightened and buyers became more qualified, the number of foreclosures dwindled. In 2020 and 2021, a combination of foreclosure moratoriums and forbearance programs prevented a repeat of the 2008 foreclosure wave.

The forbearance program was a game-changer, offering homeowners options like loan deferrals and modifications that weren’t available before. Data shows that four out of every five homeowners coming out of forbearance have either paid in full or worked out repayment plans, avoiding foreclosure. This is a significant reason why we won’t see a flood of foreclosures hitting the market.

What Does This Mean for You?

In a nutshell, our current housing inventory falls far short of what’s needed for prices to experience a significant drop or for the housing market to crash. According to Bankrate, this situation isn’t expected to change anytime soon, especially considering the robust demand from buyers:

“This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.”

A Different Scenario

So, here’s the bottom line—our 2023 housing market is a far cry from the conditions that led to the 2008 housing crisis. There’s no indication that this will change anytime soon. The available housing inventory suggests that a crash isn’t on the horizon.

So, breathe a sigh of relief, dear readers. You can rest assured that the real estate landscape today is entirely different from what it was in 2008. And as always, stay tuned for more updates and insights from your trusted realtor, Jenna Pope. Happy home hunting!