A Housing Slowdown Is Not the Same as a Crash
Headlines about changes in the housing market can make people nervous. If you are thinking about buying, selling or staying in your home, it is understandable to wonder whether another housing crash is around the corner.
The original version of this article cited a finding that 67% of Americans believed a housing market crash was imminent within the next three years. That figure reflected sentiment at the time of the original analysis, not a standing measure of how Americans feel.
But concern and evidence are different things. The original analysis pointed to three important differences between the market it examined and the conditions leading up to the last housing crash:
- Mortgage lending standards were much stricter.
- Foreclosure activity was substantially lower.
- The supply of homes for sale was more limited.
Those differences supported its conclusion that the market was not set up for a repeat of the earlier crash. To keep that comparison useful, it is important to separate the underlying explanation from figures and forecasts tied to the original publication period.
1. Mortgage Standards Were Different Before the Crash
In the lead-up to the housing crisis, getting a mortgage was much easier than it was in the period examined by the original article.
Banks lowered lending standards, making it easier for people to qualify for a home purchase or refinance. The original analysis described this as creating artificial demand by making loans available to just about anyone.
That approach increased the risk lenders took on, both in the borrowers they approved and in the mortgage products they offered. Those risks contributed to widespread defaults, foreclosures and falling home prices.
What Stricter Standards Changed
By comparison, buyers in the market examined by the original article faced much higher standards from mortgage companies. Those tighter requirements helped prevent the kind of lending conditions that could produce another large wave of foreclosures.
The original article referenced the Mortgage Bankers Association's mortgage credit availability index to illustrate the difference.
- A higher index number means mortgage credit is easier to obtain.
- A lower index number means mortgage credit is harder to obtain.
The comparison showed a sharp difference between the spike in credit availability before the crash and the tighter standards in the later period.
The useful distinction is not simply whether people are buying homes. It is how easily they can borrow and how much risk lenders are accepting. That was a central reason the original analysis argued against treating the two markets as equivalent.
2. Foreclosures Were Far Below Crisis Levels
Foreclosures were another major difference. When the housing bubble burst, many homeowners faced foreclosure. The original article reported that foreclosure activity had been substantially lower since the crash.
It attributed much of that difference to buyers being more qualified and less likely to default on their mortgages.
The article referenced data from ATTOM to compare foreclosure activity during the housing crisis with activity in the later market. Its point was that, even as foreclosures increased during the period it discussed, the overall number remained very low.
An Increase Is Not Necessarily a Wave
The original analysis also reported that most experts did not expect foreclosures to rise as dramatically as they had after the housing bubble burst.
It cited Bill McBride, founder of Calculated Risk, who expected foreclosures to increase over the following year from record-low levels. However, he did not expect the huge wave of distressed sales seen after the housing bubble.
McBride explained that distressed sales during the housing bust had led to cascading price declines. His forecast was that the market he was discussing would not experience that same chain of events.
That was a forecast for the period covered by the original article, not a permanent guarantee about foreclosure activity or home prices.
The practical question is not just whether foreclosures are rising. It is whether their overall volume resembles the distressed-sale conditions that helped drive the earlier crash. The original comparison found a substantial difference.
3. The Supply of Homes Was More Limited
During the housing crisis, there were too many homes for sale. Many were short sales or foreclosures, and that excess supply caused prices to fall dramatically.
The original article described a different situation in the market it examined. Although supply had increased during its reporting period, there was still an overall inventory shortage, primarily because of years of underbuilding homes.
It referenced National Association of Realtors data comparing the months' supply of available homes with the supply during the crash.
Put the Inventory Figure in Context
The original inventory figure was a 2.7-month supply at the sales pace measured then. That was significantly lower than during the housing crisis. It is a historical snapshot from the original analysis, not a live inventory reading.
Based on that limited supply, the article argued that there were not enough homes on the market to produce the same kind of price collapse seen during the earlier bust.
It also acknowledged that some overheated markets could experience slight price declines. In other words, its argument against another crash did not mean every market would avoid lower prices.
The distinction was between limited declines in some markets and the dramatic, widespread declines associated with excess inventory during the housing crisis.
The Bottom Line: Compare Conditions, Not Just Headlines
The original article's conclusion rested on the combination of stricter mortgage standards, lower foreclosure volume and a more limited housing supply. Together, those factors supported its view that the market it examined was very different from the one that preceded the last crash.
For your own decision, use those same three categories to organize your questions. Ask about lending requirements, foreclosure activity and the supply of homes in the area where you plan to buy or sell. Keep historical figures separate from the information relevant to your plans.
Your next step is simple: write down your housing goal and the concerns holding you back. Then reach out to Ed Parcaut, NMLS 235384, to discuss your mortgage questions and put your next move in perspective.
