Comparing Today's Inventory Trends to 2008: Insights from 3 Graphs
Even if you didn’t own a home back then, the memory of the 2008 housing crisis likely lingers. That downturn profoundly affected countless lives, leading many to fear a repeat. However, there's good reason to be reassured: today's housing market is fundamentally different. According to Business Insider:
“Despite widespread concern, the majority of housing market economists do not foresee a crash in 2024 or beyond.”
Experts are confident for several reasons. Unlike in 2008, when an oversupply of homes contributed to the crash, today's market faces an undersupply issue, despite recent inventory growth. The housing supply primarily comes from three sources:
Homeowners selling their properties (existing homes)
New home construction
Distressed properties (foreclosures or short sales)
Examining these sources reveals a stark contrast with 2008.
Homeowners Selling Their Houses
While the supply of existing homes has increased compared to last year, it remains relatively low overall. Nationally, the current months’ supply is significantly below historical norms and far from the levels seen during the crash. This trend is evident when comparing current inventory levels (green) with those of 2008 (red), as shown in the graph below.
New Home Construction
There's been a lot of discussion lately about the state of newly constructed homes, which might lead you to question whether homebuilders are overextending themselves. However, despite new homes constituting a larger share of total inventory than usual, there's no cause for concern. Here's why:
The graph below, using Census data, illustrates the number of new houses built over the past 52 years. The orange portion of the graph depicts the overbuilding that occurred before the crash. Conversely, the red portion indicates a consistent trend of underbuilding by builders since that time.
Builders today aren't overextending themselves; rather, they are striving to meet demand that has accumulated over time. According to a recent article from Bankrate:
"Builders have been mindful of the lessons learned during the Great Recession, exercising caution in their construction pace. Consequently, there remains a persistent shortage of homes available for sale."
Distressed Properties (Foreclosures and Short Sales)
Another potential source of inventory is distressed properties, such as short sales and foreclosures. During the housing crisis, an influx of foreclosures occurred due to relaxed lending standards that allowed many individuals to obtain mortgages they ultimately couldn't afford.
Today, however, lending criteria are much stricter, leading to a higher proportion of financially qualified buyers and significantly fewer foreclosures. The graph below, based on ATTOM data, illustrates the stark differences since the housing crash:
This graph clearly illustrates that as lending standards tightened and buyer qualifications improved, the number of foreclosures declined. Moreover, in 2020 and 2021, the combination of a foreclosure moratorium (indicated in black) and forbearance programs helped prevent a resurgence of foreclosures akin to those seen during the market crash.
While there are reports of foreclosure volumes increasing, it's important to note that this is in comparison to recent years when foreclosure rates were exceptionally low. We are still below the typical levels observed in a normal year.
What This Means for You
Current inventory levels are far from sufficient to precipitate significant price drops or a housing market crash. According to Forbes:
"Despite the ongoing rise in already-high home prices, concerns about an impending bubble are unwarranted. The likelihood of a housing market crash—characterized by a sudden decline in artificially inflated home prices due to diminished demand—remains minimal for 2024."
Mark Fleming, Chief Economist at First American, underscores the fundamental principles of supply and demand as a key factor preventing a crash:
"Simply put, there isn't enough supply to meet the demand. It's basic Economics 101."
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), affirms:
"We are not headed towards a repeat of the housing market crash of 2008–2012. There are no risky subprime mortgages poised to collapse, nor an excessive oversupply of homes."
Bottom Line
The housing market lacks the surplus inventory necessary to trigger a recurrence of the 2008 crisis. Expert analysis and inventory trends indicate there is no imminent crash on the horizon.
Disclaimer: The information provided in this blog post is based on the latest available data at the time of writing, which is subject to change. It is intended for informational purposes only and should not be considered as financial or investment advice.