With all of the headlines and buzz in the media, some consumers believe the market is in a housing bubble. You might be wondering what will happen next as the housing market shifts. Concerns that this could be a repeat of what happened in 2008 are understandable. The good news is that there is concrete data to show why this time is not like the last.

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

The supply of inventory required to sustain a normal real estate market is approximately six months. Anything more than that is considered an overabundance and will cause prices to fall. Anything less is a scarcity and will result in continued price increases.

For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), causing prices to tumble. Today, supply is increasing, but inventory remains low.

The graph below is data from Monthly supply from Conejo Valley Market.

One of the reasons inventory remains low is due to ongoing underbuilding. When you combine that with ongoing buyer demand as millennials enter their peak homebuying years, home prices continue to rise. Because of the limited supply in comparison to buyer demand, experts predict that home prices will not fall this time.

Mortgage Standards Were Much More Relaxed During the Crash

It was much easier to get a home loan in the run-up to the housing crisis than it is now. The graph below displays data from the Mortgage Bankers Association's Mortgage Credit Availability Index (MCAI) (MBA). The higher the number, the more easily a mortgage can be obtained.

Up until 2006, banks were creating artificial demand by lowering lending standards and making it simple for almost anyone to qualify for a home loan or refinance their existing home. Lending institutions took on much more risk in both the person and the mortgage products offered back then. This resulted in widespread defaults, foreclosures, and price declines.

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. Since the crash, foreclosure activity has been declining because buyers today are more qualified and less likely to default on their loans. The graph below tells the story using data from ATTOM Data Solutions:

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.