When housing headlines turn uneasy, it is natural to wonder whether another bubble is forming. If you remember the last housing crash, a change in the market can bring back concerns about falling prices and foreclosures.
The original comparison behind this article pointed to three important differences: fewer homes available for sale, stricter mortgage standards and lower foreclosure activity. It also highlighted the equity many homeowners had built.
The figures discussed below belong to that comparison, not a live market update. Keeping that distinction clear lets us examine what the data showed without presenting an older snapshot as a description of conditions whenever you happen to read this.
1. A Shortage of Homes Is Different From a Surplus
During the housing crisis, there were too many homes for sale. Many were short sales and foreclosures. That surplus contributed to a dramatic drop in home prices.
The supply picture in the original comparison was different. Inventory had increased over the period discussed, but the market still had an overall shortage of available homes. The article attributed that shortage primarily to almost 15 years of underbuilding.
Using data from the National Association of Realtors, or NAR, the comparison showed unsold inventory at a 3.2-month supply at the sales pace measured. That was significantly lower than the supply seen during the crash.
What the Supply Comparison Showed
The important distinction was not simply whether more homes were coming onto the market. It was whether the market had moved into the kind of surplus that existed during the housing crisis.
In the comparison, rising inventory and an overall shortage existed at the same time. Supply had increased, but it remained well below the conditions associated with the previous crash.
The article's conclusion was that there was not enough inventory to produce the same kind of collapse in home prices. It also acknowledged that some overheated markets could experience slight price declines.
Those are two separate points worth keeping together. The comparison argued against a repeat of the previous crash, not against every possible decline in every market.
2. Mortgage Standards Were Much Looser Before the Crash
During the lead-up to the housing crisis, getting a mortgage was much easier than it was in the later comparison. Banks lowered lending standards, making it easier for people to qualify for a home purchase or refinance.
That easier access to financing created artificial demand. Lending institutions took on greater risk through both the borrowers they approved and the mortgage products they offered.
Those practices led to mass defaults, foreclosures and falling prices. The problem was not just the number of loans being made. It was the risk involved in those loans.
Understanding the Credit Availability Measure
The original article used the Mortgage Bankers Association's Mortgage Credit Availability Index, or MCAI, to illustrate the difference in lending standards.
- A higher index number means it is easier to obtain a mortgage.
- A lower index number means it is harder to obtain a mortgage.
In the report cited by the original article, the index fell by 5.4%, indicating that lending standards were tightening. The comparison also showed a sharp contrast with the spike in credit availability before the crash.
Purchasers in that later period faced much higher standards from mortgage companies. The article credited tighter lending standards over the preceding 14 years with helping prevent the conditions that could produce another similar wave of foreclosures.
For someone concerned about a repeat of the housing crisis, this was a central part of the argument. The lending practices described in the comparison were not the same practices that had helped fuel the earlier bubble.
3. Foreclosure Activity and Homeowner Equity Were Different
The third distinction involved homeowners facing foreclosure. Using data from ATTOM Data Solutions, the original article showed foreclosure activity below the levels associated with the crash.
It attributed that lower activity largely to buyers being more qualified and less likely to default on their mortgages.
That connects directly to the discussion of lending standards. The original comparison presented stronger borrower qualifications and lower foreclosure activity as related differences from the conditions surrounding the housing crisis.
Why Equity Was Part of the Picture
During the crisis, many homeowners owed more on their mortgages than their homes were worth. The original article contrasted that situation with a later period in which many homeowners were equity rich.
Much of that equity came from home prices appreciating over time. In the report quoted by the article, CoreLogic stated:
“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”
That statement describes the report's measurement, not an amount every homeowner had or a figure to assume applies to a property now.
The article also quoted Rick Sharga, identified at the time as executive vice president of market intelligence at ATTOM Data:
“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”
His explanation pointed to an option many struggling homeowners had not had during the crisis: using their equity to sell rather than losing that equity through foreclosure.
The original article's conclusion was that many homeowners facing financial challenges had the option to sell their homes and avoid the foreclosure process. It described a different position from that of owners who owed more than their properties were worth.
Look at the Conditions Behind the Headlines
The original comparison offered concrete data and expert insights to explain why the market it examined was unlike the last housing crash. Its case rested on three connected differences:
- A shortage of available homes rather than a surplus.
- Higher mortgage qualification standards rather than broadly relaxed lending.
- Lower foreclosure activity, with equity giving many homeowners another option.
Use those categories to organize your questions rather than treating an older set of figures as a forecast. Ask what the available information says about housing supply, mortgage qualification and homeowner equity in the market you are considering.
Your practical next step: Write down your biggest concern and the decision you are trying to make, whether that is buying, selling or reviewing your mortgage options. Reach out to Ed Parcaut to talk through those questions and put the comparison in context for your situation.
