You probably remember the 2008 housing crisis, even if you didn’t own a home at the time. If you’re worried about a repeat of what happened back then, there’s good news—the housing market today is different from 2008. One key reason is that there aren’t enough homes for sale. This means there’s a shortage of supply, not an oversupply like last time. For the market to crash, there would have to be too many homes for sale, but the data doesn’t show that happening. The housing supply comes from three main sources:
– Homeowners decide to sell their homes.
– Newly built homes.
– Distressed properties (foreclosures or short sales)
Although the housing supply has increased compared to last year, it is still low. The supply in recent months is below normal. The chart below illustrates this more clearly. If you look at the most recent data (shown in green) compared to 2008 (shown in red), only about one-third of that inventory is available today.
So what does that mean? There simply aren't enough homes available to drive down home prices. For 2008 to repeat itself, there would need to be many more people selling their homes with very few buyers, and that isn't happening right now.
Newly Built Homes
People are also talking a lot about what’s happening with newly built homes these days, and that might make you wonder if homebuilders are exaggerating. The chart below shows the number of new homes built over the past 52 years:
The 14-year construction slump (shown in red) is a major reason why inventory is so low today. Basically, builders haven't been building enough homes for years, and this has created a significant supply shortage.
Although the final blue bar on the chart shows that this is increasing and on track to reach the long-term average again, this will not suddenly create an oversupply. That’s because there is a large gap to make up. Furthermore, builders are deliberately avoiding building too many homes, as they did during the bubble.
Distressed properties (foreclosures and short sales).
The last place inventory might come from is distressed properties, including short sales and foreclosures. During the housing crisis, there was a flood of foreclosures due to lending practices that allowed many people to obtain a mortgage they couldn't actually afford.
Today, lending standards are much stricter, resulting in more qualified buyers and far fewer foreclosures. The chart below uses data from the Federal Reserve to show how things have changed since the housing crisis:
This chart shows that, as lending standards became stricter and buyers became more creditworthy, the number of foreclosures began to decline. And in 2020 and 2021, the combination of a moratorium on foreclosures and the forbearance program helped prevent a repeat of the wave of foreclosures we saw around 2008.
The forbearance program was a game-changer, giving homeowners options—such as loan deferrals and modifications—that they didn’t have before. And data on the program’s success show that four out of five homeowners who exit forbearance have paid off their loans in full or have developed a repayment plan to avoid foreclosure. These are some of the main reasons why there won’t be a wave of foreclosures hitting the market.
What this means for you:
Inventory levels are nowhere near where they would need to be for prices to fall significantly and the housing market to collapse. According to Bankrate, this isn’t going to change anytime soon, especially considering that buyer demand remains strong: “This ongoing shortage of inventory explains why many buyers still have no choice but to drive up prices. It also indicates that the supply-and-demand equation simply won’t allow prices to fall in the near future.”
“Conclusion: The market does not have enough available homes for a repeat of the 2008 housing crisis—and there is nothing to suggest that this will change anytime soon. That is why housing inventory tells us there is no downturn on the horizon.”
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