The Current Housing Market Is Not Doomed to Collapse Because

The Current Housing Market Is Not Doomed to Collapse Because
The Current Housing Market Won't Collapse, and Here's Why

Sixty-seven percent of Americans predict that the housing market will collapse within the next three years. It is understandable that many people feel this way given the recent media coverage of the housing market's fluctuations. However, there's good news. According to recent statistics, the current market is very different from what it was like before the 2008 housing crash.

Mortgage Requirements Were Laxer in the Past
Before the housing crisis, getting a mortgage was much less of a hassle than it is now. Banks inflated the market by easing mortgage eligibility requirements and refinancing terms for borrowers of all credit scores.

That's why banks and other lenders took on a lot more of a personal risk along with the risk of offering mortgage products to people who might default. Foreclosures, defaults, and price drops followed. Things have changed, and nowadays, mortgage lenders have much stricter requirements for their customers.

The graph down below makes use of MBA data to better illustrate this point. The higher the number in this index, the simpler it is to secure a home loan. A lower score indicates a more challenging task.

The dramatic shift from the boom in easy credit that preceded the crash to the present day is graphically displayed here. The situation that could have resulted in another wave of foreclosures has been avoided thanks to stricter lending standards.

Since the recession, there has been a dramatic decrease in the number of homes lost to foreclosure.
The number of homeowners who were threatened by foreclosure when the housing bubble burst is another distinguishing feature. Since the crash, foreclosures have decreased because today's buyers are better qualified and less likely to default on their mortgages. To visualize the shift from then to now, consider the following ATTOM-powered bar chart:

And so, while the rate of foreclosures is rising, the overall number is still quite low. More importantly, most experts do not anticipate a sharp increase in foreclosures like the one that occurred after the 2008 crash. The founder of Calculated Risk, Bill McBride, explains why the effects of a large increase in foreclosures on home prices back then are unlikely to occur again.

“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.”

Available Housing Stock Today's Options Are Fewer
During the housing crisis, there were excessively many homes on the market (many of which were short sales and foreclosures), causing prices to plummet. Although there has been an increase in supply since the beginning of the year, there is still a general dearth of inventory available, primarily as a result of years of underbuilding homes.

To see how the current months' supply of homes stacks up against the pre-crash peak, have a look at the graph below, which is based on data from the National Association of Realtors (NAR). Currently, there is only a 2.7-month supply of inventory available, which is significantly lower than the previous time. Despite the fact that some overheated markets may experience slight declines, there is simply not enough inventory on the market for home prices to come crashing down like they did the last time.

As a result,
If recent news stories have you worried that another housing crash is imminent, the information presented above should calm your nerves. There has been a dramatic shift in the market, as evidenced by both expert opinion and the most recent numbers.

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