You may be reading headlines about a potential housing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A recent survey from Pulsenomics asked over one hundred housing market experts and real estate economists if they believed the housing market was in a bubble. The results indicate most experts don’t think that’s the case (see graph below):
As the graph shows, a substantial majority (60%) said the real estate market is not currently in a bubble. In the same survey, experts give the following reasons why this isn’t like 2008:
- The recent growth in home prices is because of demographics and low inventory
- Credit risks are low because underwriting and lending standards are sound
If you’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.
Low Housing Inventory Is Causing Home Prices To Rise
The supply of homes for sale needed to sustain a typical real estate market is approximately six months. Anything more than that is an overabundance and will cause prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.
According to the graph below, many homes were sold from 2007 to 2010, primarily foreclosures, which caused prices to tumble. Today, there’s still a shortage of inventory, which is causing ongoing home price appreciation (see graph below):
Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership while there’s a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains:
“The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”
Mortgage Lending Standards Today Are Nothing Like the Last Time
During the housing bubble, it was much easier to get a mortgage than it is today. Here’s a graph showing the mortgage volume issued to purchasers with a credit score of less than 620 during the housing boom, and the subsequent volume in the years after:
This graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than in the years leading up to the crash. Realtor.com notes:
“. . . Lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure.”
Bottom Line
Most experts agree we’re not in a housing bubble because solid housing market fundamentals, price growth, and lending standards are much tighter today. If you have questions, connect with us to discuss why today’s housing market is nothing like 2008.
