The Housing Market Stays Strong Despite The Covid-19 Crisis

We all have unanswered questions caused by COVID-19 and the economic instability we are experiencing across the country.  You may be wondering, as many are, if the housing market is in trouble. For homeowners who remember 2008 and the following recession, it is logical a logical question to ask.

Many families experienced financial hardships, lost their homes, and were unemployed during the Great Recession – the recession that began with a housing and mortgage crisis. Today, we are faced with very different circumstances: an international health crisis that has forced a pause in most of the economy and a major shutdown throughout the country.

So, let’s look at five comparables we know about today’s housing market, and how they were different in 2008.

1. Appreciation

When we look at appreciation in the image below, there’s a huge difference between the 6 years prior to the housing crash and the most recent 6-year period of time. Leading up to the crash, we had much higher appreciation in the housing sector than we see today. It is important to notice, the highest level of appreciation most recently in 2017 at 6.4% is below the lowest level we saw leading up to the crash in 2001 at 6.5%. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation.

2. Mortgage Credit

The Mortgage Credit Availability Index is a monthly measurement taken by the Mortgage Bankers Association.  The index gauges the level of difficulty there is to secure a home loan. The higher the index number, the easier it is to get a loan; the lower the index, the harder. 2006 peak levels far exceeded where we are at today.  Loans were much easier to get prior to the crash.  Following the crash, however, mortgage lending standards tightened dramatically, and have remained that way leading up to today, as is indicated in the image below.  

3. Number of Homes for Sale

One of the causes of the housing crash in 2008 was an huge surplus of homes for sale. Today, as shown in the next image, there is a much different picture of supply and demand. There are not enough homes on the market for the number of people who want to buy them. Across the country, we have less than 6 months of inventory, an inadequate supply of homes available for interested buyers.  We have been experiencing a "sellers market" for years and that does not show any signs of changing soon.

4. Use of Home Equity

The chart below shows the difference in how people are accessing the equity in their homes today as compared to 2008. In 2008, consumers were liquidating the equity from their homes (through cash-out refinances) and using it to finance their lifestyles. Today, consumers are treating the equity in their homes much more cautiously.

5. Home Equity Today

Today, 53.8% of homes across the country have at least 50% equity. In 2008, homeowners walked away when they owed more than what their homes were worth. With the equity homeowners have now, they’re much less likely to walk away from their homes.  

Homeowners today are carrying higher levels of equity in their homes, and were far more qualified to achieve sustainable homeownership while going through the mortgage application process. Leading up to the great recession there were years of an oversupply that created a buyers market that could have been described as a feeding frenzy. Mortgage companies took advantage of the more relaxed guidelines at the time and offered loans to many homebuyers who could not afford to sustain homeownership in the best of times, much less an economic downturn. Todays stricter lending guidelines means qualified buyers are much more likely to survive the current crisis. Furthermore, homeowners today are much more careful to protect their home equity than homeowners were leading up to the housing crash in 2008. The challenges we are facing due to the COVID-19 crisis are far different than the ones we faced in 2008. Back then, we had a housing crisis; today, we face a health crisis. What we know now is that housing is in a much stronger position today than it was in 2008. Lower inventory, greater equity and stricter mortgage lending guidelines all indicate the housing market is no longer the center of the economic slowdown. Instead, it could be what helps pull us out of the economic downturn.