What does a housing crash mean? It means your house would lose value. I think people are searching this question because some of us remember back to 2009 when a lot of values did vanish. People are unsure right now and are wondering if this is going to happen again.
Their fears make sense if you look at the way that housing prices have escalated over the past few months. When it comes to inventory, we’re talking about how many houses there are versus how many houses people are buying. Inventory is very low, but slowly rising and demand remains very high. It’s a crazy market out there. This is my 20th year in real estate, and I’ve never seen anything like this.
I want to talk about three differences between our market right now versus 2008.
1. Our population has gotten older. Millennials, who were kids back then, now have families. They’re in their 30s, they’ve stopped buying avocado toast, they have kids, and they need to buy houses. We’re at a point where there are more household formations.
It is much more likely that we will see a slow leveling off and return to a normal market.
2. Inventory. If you look at what was built over the past two decades in our country, we’ve severely underbuilt between 2010 and 2020 by 50% compared to 20 years ago. There are not enough homes being built. The lack of construction this past decade is a leftover from the 2008 crash. Builders had a hard time getting ramped back up and by then the cost to develop had gotten much higher. A lot of states and municipalities have tightened down on construction.
3. Debt and equity. If you look at the amount of debt that we carried in 2008 and the amount of equity that people had versus now, you will understand how a lot of the housing crash was caused by bad loans. They were giving loans to people that they didn’t vet and probably shouldn’t have had loans. People also had very little equity in their homes, so they could walk away without many consequences. Now Americans have $20 trillion worth of equity in our homes, so we have a lot more to lose if we were to walk away and get foreclosed. We also have better, more secure loaning practices.
It is much more likely that we will see a slow leveling off and return to a normal market than a sudden crash like in 2008. We have so much equity now so we’re protected if we were to level off, and you’re not likely to be underwater. I think we’re in really good shape right now especially compared to 2008.
If you have any real estate questions, don’t hesitate to reach out to us. We’re here to help. Have a great day.