The housing market can seem tumultuous in recent days and weeks with interest rates on the rise and many buyers pausing their searches. You might be wondering if they know something you don't. You might have heard the words "housing bubble" or "housing crash" floating around. This can leave buyers and sellers discouraged and fearful of what is to come. So, is it true? Are we in a housing bubble that is getting ready to pop?

What Caused the Housing Crash in 2008?

Foreclosures flooded the market which drove home values down substantially. But why were there so many foreclosures in 2006? How can we know that we will not see this happen again in this market?

1. The lending practices were much less stringent. Buyers who were getting loans did not go through the same level of approval that buyers do in today's market. Today's mortgage lenders have powerful tools to assess risk and higher standards for home buyers to pass in order to close or refinance on their homes. Aaron Terrazas, senior economist at Zillow says, "The types of lending that we saw leading up to the crash in 2008, for the most part, we're not seeing nowadays."

3. A number of homeowners had cashed in on the equity on their homes in the early 2000's. This caused these borrowers to be upside down on their mortgages (their home was worth less than the balance on the borrower's mortgage). This is why many homeowners walked away from their homes during this time which caused a tsunami of foreclosures to hit the market and cause home values to drop further. 

Why is Today's Market Different?

On top of better mortgage standards changing, today's demand for homeownership is real. What does that mean? According to InfoSparks, in 2008 we had a 10-month supply of homes on the market. Now, in 2022, we currently have 1.4 month's supply. (Months supply refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace.) This means there are more buyers in the market than homes for sale.

In 2008 there was high demand for homes but that was because many buyers were not properly approved or prepared to purchase their homes. This caused mass defaults and foreclosures due to borrowers' inability to make the required payments. Now that mortgage standards are higher, this ensures buyers looking to purchase are prepared to take on the financial responsibility of a home.

In the early 2000's it was common to "cash out" on the equity from your home. This caused a big issue for homeowners when their home value started to decrease. A recent study by ATTOM Data Services revealed that 41.9% of mortgaged homes have a minimum of 50% equity. That means even if housing prices decline slightly, a large number of homeowners still have equity in their homes. 

What Does That Mean?

According to CoreLogic, homeowners with mortgages have seen an increase of about 27.8% in their home equity since the second quarter of 2021. With fewer homeowners capitalizing on their equity and stricter mortgage standards, the expectation of a housing crash is unrealistic.

As a home buyer or seller, now is still a great time to work towards your real estate goals. With fewer buyers in the market, the competition has leveled the playing field. We would still need to increase inventory to about 5-6 months' supply in order to see a more balanced market for buyers and sellers. If you are interested in making a move, please reach out to one of our qualified agents!