Why Today’s Housing Inventory Shows a Crash Isn’t on the Horizon

Today’s Concerns

Great info. from Keeping Current Matters on the blog today, regarding a topic we are asked about frequently!

You may remember the housing crash in 2008, even if you didn’t own a home at the time. If you’re worried there’s going to be a repeat, there’s good news – the current housing market is different from 2008! On the flip side, if you have been holding out to purchase until there is a “crash”, give us a call to discuss your options and why that might not be the best way to meet your goals! 

One important reason is there aren’t enough homes for sale. That means there’s an undersupply, not an oversupply as in 2008. For the market to crash, there would have to be too many houses for sale, and the data doesn’t show that happening. Housing supply comes from three main sources:

  • Homeowners deciding to sell their houses

  • Newly built homes

  • Distressed properties (foreclosures or short sales)

Here’s a closer look at today’s housing inventory! 

Homeowners Deciding To Sell Their Houses

Although housing supply did grow compared to last year, it’s still low. The current months’ supply is below the norm. If you look at the latest data below (shown in green), compared to 2008 (shown in red), there’s only about a third of that available inventory today.

So, what does this mean? There just aren’t enough homes available to make home values drop. To have a repeat of 2008, there would need to be a lot more people selling their houses, with very few buyers!

Newly Built Homes

People are also talking a lot about what’s going on with new construction these days, which may cause concern as to whether homebuilders are overdoing it. The graph below shows the number of new houses built over the last 52 years:

The 14 years of underbuilding (shown in red) are a large part of the reason inventory is so low today. Basically, builders haven’t been building enough homes for years, which has created a significant deficit in supply.

While the final blue bar on the graph shows that is ramping up, and is on pace to hit the long-term average again, it won’t suddenly create an oversupply due to the large gap required to make up. It is also worth noting that in most markets, builders are being intentional about not overbuilding as they did during the bubble.

Distressed Properties (Foreclosures and Short Sales)

The last place inventory comes from is distressed properties, including short sales and foreclosures. Back during the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to get 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 the Federal Reserve to show how things have changed since the housing crash:

This graph illustrates that, as lending standards got tighter and buyers were more qualified, the number of foreclosures started to go down. And in 2020 and 2021, the combination of a moratorium on foreclosures and the forbearance program helped prevent a repeat of the wave of foreclosures we saw back around 2008.

The forbearance program gave homeowners options for things like loan deferrals and modifications that 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. 

What This Means for You

Inventory levels aren’t anywhere near where they’d need to be for prices to drop significantly and the housing market to crash. According to Bankrate, that isn’t going to change anytime soon, especially considering buyer demand is still strong:

“This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.”

Bottom Line

The market doesn’t have enough available homes for a repeat of the 2008 housing crisis – if you would like to discuss the current market and concerns you may have, give us a call today!