With all of the unanswered questions caused by COVID-19 and the economic slowdown we're experiencing across the country today, many are asking if the housing market is in trouble. For those who remember 2008, it’s logical to ask that question. Many of us experienced financial hardships, lost homes, and were out of work during the Great Recession – the recession that started with a housing and mortgage crisis.
Today, we face a very different challenge: an external health crisis that has caused a pause in much of the economy and a major shutdown of many parts of the country. We've included a graphic showing you what happened last month in our local real estate market including increased sales and a tremendous decrease in listings coming to market, making an already low supply / high demand environment more challenging.
But let's look at five things we know about today's U.S. housing market that were different in 2008.
- 1. Appreciation first of all
When we look at appreciation, there's a big difference between the 6 years prior to the housing crash and the most recent 6-year period of time. Leading up to the crash, we had much higher appreciation in this country than we see today. In fact, the highest level of appreciation most recently is still below the lowest level we saw leading up to the crash. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation.
- 2. Mortgage Credit
The Mortgage Credit Availability Index is a monthly measure by the Mortgage Bankers Association that gauges the level of difficulty to secure a loan. The higher the index, the easier it is to get a loan; the lower the index, the harder. Today we're nowhere near the levels seen before the housing crash when it was very easy to get approved for a mortgage. After the crash, however, lending standards tightened and have remained that way leading up to today.
- 3. Number of Homes for Sale
One of the causes of the housing crash in 2008 was an oversupply of homes for sale. Today, we see a much different picture. We don't have enough homes on the market for the number of people who want to buy them. Across the country, we have less than 6 months, and here in our local market, less than a month's worth of inventory, an under supply of homes available for interested buyers.
- 4. Use of Home Equity
In 2008, consumers were harvesting equity from their homes through cash-out refinances and home equity loans, using their homes like a cash machines to finance their lifestyles. Today, consumers are treating the equity in their homes much more cautiously.
- 5. Finally, Home Equity
Today, 53.8% of homes across the country have at least 50% equity. In 2008, homeowners walked away when they owed more than what their homes were worth. With the equity homeowners have now, they're much less likely to walk away from their homes.
Here's the Bottom Line:
The COVID-19 crisis is causing different challenges across the country than the ones we faced in 2008. Back then, we had a housing crisis that led to a recession; today, we face a health crisis. And, though some say we are due for a recession, historically speaking, the housing market fares quite well through recessions and it's difficult to see how a product like homes, with such high need and low supply, could drop in value. What we know now is that housing is in a much stronger position today than it was in 2008. It is no longer the center of the economic slowdown. Rather, it could be just what helps pull us out of the downturn. If you have any questions or need to speak to someone about your home or a hardship you may be facing, we're here for you. Don't wait. We have years of experience to assist you. Remember, this too shall pass.