Helping you buy and sell real estate in Boulder County and beyond
Whether or not you owned a home in 2008, you likely remember the housing crash that took place back then. And news about an economic slowdown
happening today may bring all those concerns back to the surface. While
those feelings are understandable, data can help reassure you the
situation today is nothing like it was in 2008.
One of the key reasons why the market won’t crash this time is the current undersupply of inventory. Housing supply comes from three key places:
Current homeowners putting their homes up for sale
Newly built homes coming onto the market
Distressed properties (short sales or foreclosures)
For the market to crash, you’d have to make a case for an oversupply
of inventory headed to the market, and the numbers just don’t support
that. So, here’s a deeper look at where inventory is coming from today
to help prove why the housing market isn’t headed for a crash.
Current Homeowners Putting Their Homes Up for Sale
Even though housing supply
is increasing this year, there’s still a limited number of existing
homes available. The graph below helps illustrate this point. Based on
the latest weekly data, inventory is up 27.8% compared to the same week last year (shown in blue). But compared to the same week in 2019 (shown in the larger red bar), it’s still down by 42.6%.
So, what does this mean? Inventory is still historically low.
There simply aren’t enough homes on the market to cause prices to
crash. There would need to be a flood of people getting ready to sell
their houses in order to tip the scales toward a buyers’ market. And
that level of activity simply isn’t there.
Newly Built Homes Coming onto the Market
There’s also a lot of talk about what’s happening with newly built
homes today, and that may make you wonder if we’re overbuilding. But
home builders are actually slowing down their production right now. Ali
Wolf, Chief Economist at Zonda, notes:
“It has become a very competitive market for builders where they are trying to offload any standing inventory.”
To avoid repeating the overbuilding that happened leading up to the housing crisis,
builders are reacting to higher mortgage rates and softening buyer
demand by slowing down their work. It’s a sign they’re being intentional
about not overbuilding homes like they did during the bubble.
And according to the latest data from the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes
this year. While this will add more inventory to the market, it’s not
on pace to create an oversupply because builders today are more cautious
than the last time when they built more homes than the market could
Distressed Properties (Short Sales or Foreclosures)
The last place inventory can come from is distressed properties,
including short sales and foreclosures. Back in the housing crisis,
there was a flood of foreclosures due to lending standards that allowed
many people to secure a home loan they couldn’t truly afford. Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The graph below uses data from ATTOM Data Solutions on properties with foreclosure filings to help paint the picture of how things have changed since the crash:
This graph shows how in the time around the housing crash there were
over one million foreclosure filings per year. As lending standards
tightened since then, the activity started to decline. And in 2020 and
2021, the forbearance program was a further aid to help prevent a repeat of the wave of foreclosures we saw back around 2008.
That program was a game changer, giving homeowners options for things
like loan deferrals and modifications they didn’t have before. And data
on the success of that program shows four out of every five homeowners
coming out of forbearance are either paid in full or have worked out a
repayment plan to avoid foreclosure. These are a few of the biggest
reasons there won’t be a wave of foreclosures coming to the market.
Although housing supply is growing this year, the market certainly
isn’t anywhere near the inventory levels that would cause prices to drop
significantly. That’s why inventory tells us the housing market won’t