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5 Simple Graphs Proving This Is NOT Like the Last Time

5 Simple Graphs Proving This Is NOT Like the Last Time

With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:

“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”

There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.

1. Mortgage standards are nothing like they were back then.

During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.5 Simple Graphs Proving This Is NOT Like the Last Time | Keeping Current Matters

2. Prices are not soaring out of control.

Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.5 Simple Graphs Proving This Is NOT Like the Last Time | Keeping Current MattersThere’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.

3. We don’t have a surplus of homes on the market. We have a shortage.

The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.5 Simple Graphs Proving This Is NOT Like the Last Time | Keeping Current Matters

4. Houses became too expensive to buy.

The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:5 Simple Graphs Proving This Is NOT Like the Last Time | Keeping Current Matters

5. People are equity rich, not tapped out.

In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:5 Simple Graphs Proving This Is NOT Like the Last Time | Keeping Current MattersDuring the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.

Bottom Line

If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.


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21 replies
  1. Shawn Henry
    Shawn Henry says:

    Times now are different, But what if we enter a recession or some form of economic collapse and people lose their jobs left and right? Many people live on credit spend too much on cars and are house poor as well. If those people can’t afford their mortgages anymore and some of them walk away from them unable to afford the payments wont it cause the same effect to the housing prices even though it’s for a slightly different reason?

    Reply
    • Dee
      Dee says:

      Agree with Shawn. With all these layoffs and a projected recession on the horizon, I would imagine a surge of defaulted payments which would then lead to foreclosures. Dont how this is unavoidable.

      Reply
      • Paul Richardson
        Paul Richardson says:

        It’s possible banks did finally learn a lesson (last time, in 2008-ish during the big “land grab”).
        Loan modifications (where they extend the back end of the mortgage with payments from now due to a temporary hardship). Traditionally, the banks almost always just went straight to foreclosure. As if they had no other tools in thier arsenal.
        So we can hope that they have learned that it’s cheaper to modify a loan than just foreclose.
        Time will tell.

        Reply
    • Mike Hughey
      Mike Hughey says:

      Agree with Shawn. They always say this time its different right? It is always different but there is always something that brings down the economy and usually it is 1 BIG thing or a chain reaction of other things. I was talking with a friend about 2 months ago and everything looked great for the economy and then He said well we never know what can hit like a war, a rise in interest rates or something we have no idea about…. So what happened now. Corona Virus, something we have no Idea or thought about and it is bringing down this economy right now. So if we go to 20% or higher UE you think people will still buy houses at current prices? No way, it will never happen. The market will react accordingly. Prices will drop like a Rock, Rents will drop as well.It will become survival mode for all.

      Reply
  2. Tim collins
    Tim collins says:

    People have a tendency of not purchasing new vehicles and applying for a mortgage when they have lost 10s of thousands in the market. Most people I know have lost 20-30 percent in the last 2 weeks in their retirement. You’ll see what I mean in about 6 weeks if this continues across America.

    Reply
    • Alex
      Alex says:

      Most Americans dont own stock so they weren’t negatively impact by stock market losses.

      I agree with Shawn. Just because the indicators are different than 2008 that doesn’t mean it can’t happen.

      All the hospitality workers that own homes AND especially COMMERCIAL real estate that is over-leveraged at present is where this will start to fall. Then all the ancillary things will follow. Mass job losses, foreclosures, and owners trying to avoid impending foreclosure (supply glut) after Gov’t stops propping them up.

      Reply
      • Aaron Kane
        Aaron Kane says:

        Mortgage rates are low right now. This means people who had the means to buy houses (ie having “money” in the stock market) were more likely to buy a house and take out a mortgage. It is those people who now have very little spendable money. I work in real estate and we had several people have to back out out at the recent crash because all of their money they thought they had disappeared. Imagine all the people in that situation who had already made the purchase and now cannot pay off a mortgage. We very well could enter a similar situation as in 2008.

        Reply
  3. Joey
    Joey says:

    Interesting read and good to have the data. I think it’s important not to over generalize, though. Locally, we’ve been watching the housing market for the last few years and prices are soaring thanks to investors buying up property in good school districts, flipping, and running up prices. I’m hoping for small corrections in these micro-markets to make housing affordable for families again.

    Reply
  4. Neal W Heery
    Neal W Heery says:

    If people walk away from houses due to lack of Job it will create supply that is badly needed. We are still going to have an inventory shortage. This will be a dynamic wealth shift for many. Buy now buy what you can hold onto. Rent it keep it. Buy assets.

    Reply
  5. Robin Perewozki
    Robin Perewozki says:

    Historically when there is a crash in the equities market they flock to real estate. IMHO the housing market is as strong as ever due to the checks put in place after 2008. Sure, there will be distressed properties out there like always. However, if you’re waiting for a housing market crash then you will be stuck on the sidelines rueing.

    Reply
  6. Karen S Alvarez
    Karen S Alvarez says:

    This post was weeks ago. Things have changed big time since mid March. There will be people having to sell due to income loss, but there will people to buy whom are doing well during this pandemic. For example medical industries people, 1st responders, Ect…

    Reply
    • Patrick Gilmore
      Patrick Gilmore says:

      With the inject of the COVID stimulus package starting to be distributed across the affected sectors, coupled with the uncertainty of the true impact of COVID in regards to economy, human health and duration, has there been any noticeable real estate attitude trends? I spent 25+ years in the US Armed Forces and in the process of searching for my first home purchase (never made the opportunity to buy while in the military), with the uncertainty I have begun to get “gun shy” with committing to search a major purchase. Thoughts?

      Reply
      • Beverly Curry
        Beverly Curry says:

        Smart Buyer. You’ve begun your search at the right time. Serious sellers and buyers in the market right now. Houses going under contract and being sold. Get prepared to buy now

        Reply
  7. Marcy and Scott Daneils
    Marcy and Scott Daneils says:

    Selling residential real estate since 1976 and 1991, we can attest to the consideration that today’s economic situation is unlike prior changes we have experienced! Our current, radical circumstance is certainly unusual and nothing similar to the past! Fortunately, we have established a successful reputation and are trusted by our clients, from generation to generation, in assisting them to purchase and sell their homes.

    Reply
  8. Charyl Gargel
    Charyl Gargel says:

    In the 70’s we had a tightening of lending and 18% interest. It looks to be the beginning of tighter lending but yet super low interest rates..what does this mean?

    Reply
  9. MariaMunoz
    MariaMunoz says:

    I agree with Shawn. Banks are giving a 3 month forbearance. So if your mortgage is $2000 and you can’t pay that now. How will you come up with $6000 in by the end of 3 months. The banks are setting up many home owners to fail. This will cause alot of foreclosures.

    Reply
  10. Beverly Curry
    Beverly Curry says:

    With the interest rates being lowered and in the midst of COVID19, serious buyers are still needing to find and close on homes, while there are sellers that need to sell. So transactions ARE CLOSING!. For those sellers who are considering and can sell their home, with low inventory levels now’s a good time to sell. We, Realtors are being extremely cautious during this pandemic, working with “serious” buyers and “motivated” sellers! The numbers (local market) indicate that the market is somewhat down, with predictions that it will level off. No immediate indication of a similar 2008 Meltdown/Crash!

    Reply

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