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Why the Present Real Estate Market isn't Following a Downward Trend

Recent reports of a potential housing market crash within the next three years has caused 67% of Americans to worry. However, there are several reasons why this apprehension is unwarranted; today’s real estate environment could not be more different from what it was before 2008! In light of current data which clearly proves that we’re in a much safer position now than ever before, don’t believe the hype and rest assured that your investments are secure.

Before, Mortgage Standards Were Less Strict

Prior to the housing crisis, it was easier than ever before to obtain a mortgage or refinance an existing one. Banks were encouraging artificial demand by lowering lending standards, which made it possible for almost anyone to qualify. Consequently, lenders were taking on increased risk with individuals and loan programs they provided – which led to enormous defaults, foreclosures and plummeting prices afterwards. Thankfully today’s purchasers are facing much tighter regulations from home loan institutions in comparison.

As displayed in the graph below, which is sourced from Mortgage Bankers Association (MBA), you can see how easy or difficult it may be to get a mortgage. This index reveals that when the number goes high, acquiring a loan becomes easier and vice-versa.

This graph indicates how much the market has changed since a surge in credit availability before the crash occurred. Thankfully, stricter lending standards have been put into place to prevent future crises that could cause waves of foreclosures like we experienced last time.

Since the market crash, foreclosure volumes have experienced a remarkable decline.

The housing market crash of 2008 caused a staggering number of homeowners to face foreclosure. Fortunately, current buyers are much more qualified and the probability they will default on their loans is low – consequently, the rate of foreclosures has significantly decreased since then. To illustrate this point further, ATTOM’s data shows us just how different things have become in comparison to last time:

Although foreclosure rates have increased, the total number is still very low. Moreover, most analysts do not anticipate that foreclosures will dramatically rise like it did after the 2008 economic crash. Bill McBride from Calculated Risk sheds light on how a massive hike in foreclosures affected home prices back then – and explains why this is unlikely to happen again now.

“The bottom line is there will be an increase in foreclosures over the next year (from record level lows), but there will not be a huge wave of distressed sales as happened following the housing bubble. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.”

Houses for Sale Today Is More Limited

In the past, too many houses were for sale during the housing crisis, given that a considerable number of those dwellings involved foreclosure and short sales – ultimately leading to prices tumbling drastically. Even though supply has increased in 2022, there is still an overall lack of inventory available due to years of insufficient home construction.

The below graph, created with data from the National Association of Realtors (NAR), compares the current months’ supply of homes to that during the crash. It is clear that unsold inventory sits at a remarkably low 2.7 -months’ supply as per present sales rate—distinctly lower than before! This lack of stock implies home prices won’t experience an extreme dip like last time, although certain markets may witness minor drops in price.

Bottom Line 

If you have been feeling concerned by today’s headlines that we may be headed for a housing crash, the data presented should allay your worries. The most up-to-date facts and expert perspectives demonstrate how entirely different this market is from what it was in past times.

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