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Why There Won’t Be a Housing Crash in 2023/2024

Reflecting on the upheaval of the 2008 housing crash, it’s natural to wonder if a similar crisis could be on the horizon. The reassuring news is that the current housing market differs significantly from that of 2008. One key distinguishing factor is the housing inventory.

The housing supply is vital to the real estate market and originates from three main sources: homeowners deciding to sell their properties, newly constructed homes, and distressed properties, including foreclosures and short sales. Let’s explore today’s housing inventory to see why it differs substantially from that of 2008.

Homeowners Deciding To Sell Their Houses

While it’s true that the housing supply has increased compared to the previous year, it still remains relatively low. Current data shows a supply for the month that falls below the norm. A visual representation highlights this stark contrast. When we compare the latest data (indicated in green) to that of 2008 (depicted in red), it becomes evident that today’s available inventory is only a fraction of what it was back then.

What does this signify? Essentially, there aren’t enough homes on the market to put downward pressure on home values. To replicate the conditions of the 2008 crisis, there would need to be an excess of sellers and a shortage of buyers – a scenario that is conspicuously absent in today’s market.

Newly Built Homes

The discussion about the current status of newly built homes has raised concerns regarding potential overbuilding. A historical view of new home construction sheds light on the issue. Over the past 52 years, there have been 14 years of underproduction, represented by the red bars. This prolonged period of insufficient construction significantly contributes to the current supply shortage.

While there is a resurgence in construction, poised to align with long-term averages, it’s improbable to lead to an oversupply. The reason for this lies in the substantial deficit that has accumulated over the years. Additionally, builders have adopted a cautious approach to precent overbuilding, having learned from the mistakes of the past housing bubble.

Distressed Properties (Foreclosures and Short Sales)

Foreclosures were a defining aspect of the 2008 housing crisis, primarily a result of lenient lending standards that allowed people to buy homes they couldn’t afford. Nowadays, lending standards are much stricter, leading to a significant decrease in foreclosures.

A visual representation based on Federal Reserve data emphasizes this shift. As lending standards became more stringent, and buyers became financially more qualified, foreclosures started to decline. The years 2020 and 2021 marked a significant turning point, thanks to a combination of a foreclosure moratorium and the forbearance program, effectively preventing a repeat of the foreclosure crisis seen in 2008.

The forbearance program provided crucial support, offering homeowners options like loan deferrals and modifications that were previously unavailable. Data shows that four out of every five homeowners emerging from forbearance are either fully caught up on payments or have established repayment plans, a clear testament to the program’s success. All of these factors converge to indicate that a wave of foreclosures is unlikely to disrupt the market.

What This Means for You

In today’s landscape, housing inventory levels are far from reaching the critical mass needed to cause significant price declines or provoke a housing market crash.

As reported by Bankrate, this scenario is unlikely to shift in the near future, particularly given the enduring strength of buyer demand. The ongoing undersupply keeps pushing many buyers into competitive bidding situations, making a price crash unlikely in the near term.

Bottom Line

The data is clear – the current housing market is not at risk of replicating the 2008 housing crisis. The housing inventory tells a story of undersupply, not oversupply, putting it on a completely different course. The circumstances required for a market crash are simply not present. The housing inventory indicates that there is no housing market crash on the horizon.

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