Some consumers assume a housing bubble exists due of media coverage. You may worry what will happen as the home market transforms. Concerns that it could repeat 2008 are natural. Good news: There's data to show why this time is different.
There's a housing shortage, not a surplus.
Normal real estate market needs six months of inventory. Oversupply leads prices to fall. Anything less will cause price increases.
Too many homes for sale (many short sales and foreclosures) during the housing crisis caused prices to fall. Supply is expanding, but inventory is low.
The NAR graph below compares this time to the crash. At the present sales pace, unsold inventory lasts only 3 months.
Underbuilding contributes to low inventory. When you combine it with millennials' growing homebuying demand, home prices continue to rise. Experts predict property prices won't decrease this time due to limited availability and buyer desire.
The crash relaxed mortgage standards.
Before the housing crisis, home loans were easy to get. The graph below shows Mortgage Bankers Association MCAI data (MBA). Higher scores make mortgage approval easier.
Up until 2006, banks created false demand by lowering lending requirements and making it easier to get a mortgage or refinancing. Back then, lenders took on more risk with both borrowers and mortgage products. Mass defaults, foreclosures, and price drops followed.
Today, mortgage providers have stricter requirements for buyers. First American's chief economist says:
Increasing economic instability and monetary policy tightening have tightened credit criteria.
Today's stricter requirements help prevent another wave of foreclosures.
The foreclosure volume is down from the crash.
After the housing bubble broke, many homeowners faced foreclosure. Since the crisis, foreclosures have declined since buyers are better qualified and less likely to default. ATTOM Data Solutions helped create the graph below.
Also, today's homeowners have plenty of equity. Some homeowners used their homes as ATMs before the housing bubble. Once equity accumulated, many withdrew it. When property values fell, some homeowners had negative equity, meaning they owed more on their mortgage than their home was worth. Some households elected to walk away from their houses, which led to a wave of distressed property listings (foreclosures and short sales) that sold at significant discounts and decreased the value of other homes in the region.
Today's rising prices have boosted homeowners' equity. Black Knight:
In the past year, mortgage holders accumulated $2.8 trillion in tappable equity, a 34% rise that equals more than $207,000 per borrower.
With $207,000 in home equity, homeowners are in a new position.
If you're scared we're making the same mistakes as before, the graphs should help. Data and professional insights demonstrate why this is different.