3 Graphs To Show This Isn’t a Housing Bubble

By
Real Estate Agent with PHP Houses SL3302417

With all the headlines and buzz in the media, some consumers believe the market is in a housing bubble. As the housing market shifts, you may be wondering what’ll happen next. It’s only natural for concerns to creep in that it could be a repeat of what took place in 2008. The good news is, there’s concrete data to show why this is nothing like the last time.

There’s a Shortage of Homes on the Market Today, Not a Surplus

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to tumble. Today, supply is growing, but there’s still a shortage of inventory available.

The graph below uses data from the National Association of Realtors (NAR) to show how this time compares to the crash. Today, unsold inventory sits at just a 3.0-months’ supply at the current sales pace.

One of the reasons inventory is still low is because of sustained underbuilding. When you couple that with ongoing buyer demand as millennials age into their peak homebuying years, it continues to put upward pressure on home prices. That limited supply compared to buyer demand is why experts forecast home prices won’t fall this time.

Mortgage Standards Were Much More Relaxed During the Crash

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. The graph below showcases data on the Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association(MBA). The higher the number, the easier it is to get a mortgage.

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices.

Today, things are different, and purchasers face much higher standards from mortgage companies. Mark Fleming, Chief Economist at First American, says:

Credit standards tightened in recent months due to increasing economic uncertainty and monetary policy tightening.” 

Stricter standards, like there are today, help prevent a risk of a rash of foreclosures like there was last time.

The Foreclosure Volume Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been on the way down since the crash because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help tell the story:

In addition, homeowners today are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATMs. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a wave of distressed property listings (foreclosures and short sales), which sold at considerable discounts that lowered the value of other homes in the area.

Today, prices have risen nicely over the last few years, and that’s given homeowners an equity boost. According to Black Knight:

In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower. . . .”

With the average home equity now standing at $207,000, homeowners are in a completely different position this time.

Bottom Line

If you’re worried we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your concerns. Concrete data and expert insights clearly show why this is nothing like the last time.

Contact us:
PHP Houses
142 W Lakeview Ave
Unit 1030
Lake Mary, FL 32746
Ph: (407) 519-0719
Fax: (407) 205-1951
email: info@phphouses.com

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The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. The author does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. The author will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

 

 

 

 

 

Comments (8)

Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great information.   Thanks for sharing and enjoy your day!

Aug 02, 2022 07:15 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Walter and Thank You for this great blog to share with people and more people should see this one.  Make it a great day!

 

Aug 02, 2022 07:48 AM
Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

The homes look very nice. Great that you are Walter. I am Walter Eric and my dad was Walter Thomas. Thye granddad was also walter. He was born in 12-25-1888.

Aug 02, 2022 08:05 AM
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Property Manager

Hi Walter,
It's a whole different set of circumstances this time, isn't it?

Aug 02, 2022 11:31 AM
Walter DiLoreto

Hi Carol,
Indeed. Have a great day!

Aug 03, 2022 07:11 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi Walter - I agree and most who understand supply and demand do as well.  They is so much no nothing media hype.

Aug 06, 2022 05:12 AM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Walter. This who think we may be in a bubble should stick a pin it it and get over it. Not happening. Enjoy your day.

Aug 06, 2022 05:17 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Walter DiLoreto,

What a great post! I'm so glad that Carol Williams featured your post in her Second Chance Saturday Series.....You showed Concrete data and expert insights that clearly show why this is nothing like the last time.

Aug 06, 2022 06:37 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Excellent and well-written post. We are NOT and won't be in a housing bubble.  The dynamics are completely opposite of where we were before and during the housing bubble.  One of my favorite phrases, and you can use this, builders stopped building after the housing recession, but people didn't stop having babies!  

Aug 10, 2022 05:30 PM