5 reasons This Isn’t a Repeat of the 2008 Housing Crash
Many homeowners are still haunted by the 2008 foreclosure and housing collapse that happened and came out of nowhere. A lot of the homeowners are remembering that, and now 41% of those homeowners think that the foreclosures is coming up in 2023. The question is, is it going to be as severe as the 2008 foreclosure or is it going to be less severe? Let’s look at those.
The question is, is this fear of a housing crash valid? Well, “It’s a valid question”, said Lawrence Yun, chief economist for the National Association of Realtors. He said at the Nars Real Estate Forecast Summit, “People are remembering the crushing and painful foreclosure crisis. So it has become a key question. Will Home prices crash after the strong run up in prices across the country over recent years?”
Mr.Yun gives five reasons why the 2008 housing crash is way different from the housing crash that is anticipated for 2023. Let’s look at those points.
1.) The labor market remains very strong. In the last recession, there were 8.6 million job losses. Currently there are none, although there has been layoffs in the sectors of technology and information technology. But the net loss is pretty much zero. So that’s a big comparison as far as job losses goes.
2.) Part of the reason in 2008 housing crash came about was because there were subprime loans and toxic loans in this market. For the last four or five years, banks have been very cautious in giving out loans to very valid and qualified buyers. So there are hardly any subprime loans and hardly any toxic loans. So that’s another reason why the foreclosure crisis may not be as severe as we are anticipating.
3.) We all know that in the last few years, post COVID, there were shortage of homes, but there’s also a shortage of homes with the new builders. In 2008, there were over 7 million new homes built. Currently, there is only 4.6 million homes being built. So if you compare the number of homes on the market, which leads to lower prices and foreclosures, the shortage is valid. The more the shortage of homes there are, the less chances of a foreclosure. And with the higher interest rates, a lot of the sellers are not moving who wanted to move. So that will create more shortage. So as long as we have a shortage of homes, the foreclosure crisis may be less severe.
One of the key factors that leads to foreclosure is the delinquency rate. Currently, the delinquency rate is only 3.6%. In 2008, that was close to 10%. So it’s a big difference as far as delinquency goes. So as long as the delinquency stays low, there’s again less chance of a severe foreclosure crisis.
4.) Currently, there are ultra low foreclosure rates. In 2008, the foreclosure rate was 4.6%. Currently it’s only 0.6%, which is very low considering the 2008 housing crash. One of the key things that Mr. Yun suggests is that because of the shortage of inventory of homes for sale, despite the high interest rate, despite the high prices, because of the shortage, there’s a less chance of a huge price crash in this market. The other thing to remember is that for those homeowners who bought the homes in the last 4-7years, they have built up a lot of equity. So even if they become delinquent on their loans or they lose their jobs, the equity will keep on going for at least a couple of years before they default on their loans or have to let their houses go.
So because of the shortages, because of the high equities chances of a huge price crash, according to Mr. Yun, is negligible or it’s not as severe as 2008, which was a very drastic foreclosure crisis.