With all the headlines and media hype about changes in the housing market, you might think this is a housing bubble. There is still a shortage of housing in the market today,not a surplus. Historically, the housing crisis during 2008, too many homes were put up for sale (many of them short or foreclosed),and prices fell dramatically. Supply has increased since the beginning of the year, but overall available inventory is still in short supply, largely due to nearly 15-year-old home sub-construction. The chart below uses data from the National Association of Realtors (NAR) to show how the supply of available housing has fared over the months compared to the crash. Today, at the current sales pace, there are only 3.2 months left unsold, a significant drop from last time. There isn’t enough inventory in the market for property prices to fall as they did last time, but some overheated markets could see a gradual decline.
Mortgage standards were much looser than in the pre-crisis era, it was much easier to get a mortgage than it is now. By 2006, banks had lowered lending standards, making it easier for almost everyone to qualify for a mortgage or refinance their current home, creating artificial demand. At the time,lenders were taking far greater risks, both in terms of who they offered and the mortgage product. This has resulted in massive defaults, foreclosures and price drops. Things are different today, with buyers facing much higher standards from mortgage lenders. The chart below uses data from the Mortgage Bankers Association (MBA) Mortgage Credit Availability Index(MCAI) to tell this story. In this index, thehigher thenumber, the easier it is to get a home loan. The lower thenumber, the more difficult. In the latestreport, the index is down 5.4%, suggesting stricter standards.
Tighter lending standards over the past 14 years have helped prevent scenarios like the one leading to a string of foreclosures. Foreclosure volumes are not what they were during the crash Another difference isthe number of homeowners facing foreclosures after the housing bubble burst. Since the crash, foreclosure activity has declined. This is largely because buyers are more qualified and less likely to default on their loans.
Needless to say, today’s homeowners have options they didn’t have during the housing crisis. Because more people had a mortgage than the house was worth. Many homeowners today are equity rich. This fairness is largely due to the fact that real estate prices have been rising for along time.
This puts the homeowners in a completely different position this time around. Many of those in trouble today have the opportunity to sell their homes and use their equity to avoid the foreclosure process. If you’re worried you’re making the same mistakes that led to your home’s collapse, the chart above should help ease your fears. It clearly shows why it’s not the last.
So, if you’re wondering if right now is the right time to purchase a home give us a call. Let’s chat.