Many homeowners we speak with are still concerned that we may be approaching a repeat of the 2008 housing crash when property values collapsed and foreclosures spiked. The concern is understandable. The memory of that market haunts many. In fact, a recent survey by Lending Tree reported that 41% of Americans say they fear a housing crash in the next year.
Are their fears justified? It is a valid question. The answer is found by studying the data, the key indicators that help predict future trends in the housing market. All five of the indicators report a very different market than the one that resulted in the 2008 collapse.
Loan Types
The single greatest contributor to the prior collapse was prevalence of subprime loans. These loans were sold aggressively, and allowed people to borrow more than the home was valued, with
payments higher than they could afford. The loans were based on the assumption of future increases in income and home values. But when sales slowed, it all imploded. Today, in contract, subprime loans are
essentially nonexistent. And lending qualifications have remained tight, dramatically limiting buyers from over borrowing. In fact, several recent changes have made qualifying even tighter, reducing the
likelihood of large numbers of foreclosures.
Inventory
The greatest factor effecting price is the law of supply and demand. When inventory (supply) is low, prices increase. When there is a surplus of inventory, prices drop. During the prior crash, builders were
constructing 7.65 million homes per year. At the time only 4 million new buyers were entering the market, resulting in significant inventory surpluses. Today, in contract, labor shortages and supply chain issues have stalled new home construction to only 4.6 million. This is at a time where the number of new buyers entering the market has increased to 6 million. This is the primary cause of the rapidly increasing prices. And the labor shortage and supply chain issues have no fast easy solutions, it is unlikely this will change quickly.
Job Market
During the prior housing downturn, we were experiencing a net loss of over 8 million jobs per year. Today, in contrast, we are experiencing net increase in jobs. Although some industries have seen loses, such as technology and banking, the overall job growth in other industries have more than made up the difference. All expectations are that this robust job market will continue for the
foreseeable future.
Delinquency Rates
During the prior collapse, 10% of all U.S. mortgages were delinquent. In contract, todays mortgage delinquency rate is sitting at 3.6%. This is a historic low, and has been holding firm for the past five years.
Foreclosure Rates
During the prior collapse, 4.6% of all mortgage loans were in active foreclosure. Homeowners with plunging home values were simply walking away from their loans. Today, in contrast, only 0.6% of mortgage loans are in foreclosure. This is also a historical low, and appears to be holding steady.
For the reasons listed above, the fundamental indicators do not point to a housing recession. There have been some news reports that higher interest rates are causing “lower appreciation” in some markets. However prices in every market continue to increase above historic rates, even of lower than last year. For example, central Ohio prices are currently appreciating at 10% -15%. Although this is less than last years 15% – 20%, it is still well above our historic 3%-5%. As long as inventory
remains well below demand, and the other indicators continue their current trajectory, all expectations are that the housing market will remain strong for the foreseeable future.