Why Today’s Housing Market Differs from 2008: A Look at Inventory Trends

Oct 4, 2023 | Blog

The memories of the 2008 housing crash still linger in the minds of many, even those who didn’t own homes at the time. If you’re concerned about the possibility of history repeating itself, rest assured that today’s housing market is fundamentally distinct from that of 2008.

One crucial distinction lies in the balance of supply and demand. Unlike 2008, the current housing market faces an undersupply, not an oversupply of homes. To precipitate a market crash, there would need to be an excess of homes for sale, a scenario not supported by the data.

Housing supply primarily emanates from three sources:

1. Homeowners choosing to sell their properties.
2. Newly constructed homes.
3. Distressed properties, including foreclosures and short sales.

Let’s delve into today’s housing inventory to discern the key differences from 2008.

Homeowners Deciding To Sell Their Houses

While housing supply has seen some growth compared to the previous year, it remains relatively low. The current months’ supply of homes falls below the typical benchmark. The graph below illustrates this point, with the latest data (in green) compared to 2008 (in red), highlighting that today’s available inventory is only about a third of what was present in 2008.

What does this mean? The insufficient number of homes for sale mitigates the likelihood of a significant drop in home values. To replicate the conditions of 2008, there would need to be a surplus of homes on the market with a dearth of buyers—an improbable scenario in the current market.

Newly Built Homes

Recent discussions surrounding newly constructed homes may raise questions about potential overbuilding by homebuilders. The graph below tracks the number of new homes constructed over the past 52 years.

Housing Market Inventory Trends 2023

The 14 years of underbuilding (depicted in red) significantly contribute to today’s low inventory levels. Builders have, in essence, failed to construct an adequate number of homes for an extended period, resulting in a substantial supply deficit.

Although the final blue bar on the graph indicates an increase in construction, aligning with the long-term average, it is unlikely to create an oversupply. The gap is too substantial to bridge rapidly, and builders are exercising caution to avoid overbuilding as witnessed during the previous housing bubble.

Distressed Properties (Foreclosures and Short Sales)

The third source of housing inventory is distressed properties, including foreclosures and short sales. During the housing crisis, a surge in foreclosures was observed due to lenient lending standards, enabling individuals to obtain mortgages they couldn’t genuinely afford.

Today, stricter lending standards have resulted in a higher proportion of qualified buyers and a marked decline in foreclosures. The graph below, drawing on Federal Reserve data, illustrates this shift since the housing crash:

Housing Market Inventory Trends 2023

The graph underscores how tighter lending standards and more qualified buyers have led to a decrease in foreclosures. In 2020 and 2021, a combination of foreclosure moratoriums and forbearance programs effectively averted a repeat of the foreclosure wave seen in 2008.

The forbearance program proved to be a pivotal development, affording homeowners options such as loan deferrals and modifications that were previously unavailable. Data reflecting the program’s success indicates that four out of every five homeowners exiting forbearance either settled their debts in full or devised repayment plans to evade foreclosure. These factors collectively dispel the notion of an impending wave of foreclosures entering the market.

What This Means for You

The current housing inventory levels fall far short of what would be required to trigger a significant price decline or a market crash. According to Bankrate, this situation is unlikely to change in the foreseeable future, particularly given the sustained strength of buyer demand:

“This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.”

Bottom Line

The housing market is not in a position to replicate the conditions of the 2008 housing crisis, and there is no evidence to suggest that such a scenario is on the horizon. The state of the housing inventory serves as a strong indicator that a market crash is not in the cards.

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