Frequently asked question: Will the housing market fall as it did in 2008?
It's difficult to make a direct comparison between the current real estate market and the market in 2008, as the environment has changed significantly in the intervening years. Here is a recap on why the market collapsed:
The real estate market collapse in 2008 was caused by a combination of factors that led to a decline in housing prices and a wave of defaults and foreclosures. Essentially, many banks and lenders issued mortgage loans to people with poor credit, without properly evaluating whether they could afford to pay back the loans. When housing prices began to decline, the mortgages became unaffordable which led to many defaults and foreclosures. The lack of liquidity became an issue, as well. With limited cash and credit to facilitate real estate transactions, it became difficult to obtain a mortgage. This caused a decline in demand for housing and a drop in housing prices. It also created a fear in the financial markets, further contributing to a downward spiral in the real estate market.
That being said, there are a few key ways in which the market today differs from the market in 2008:
- In 2008, the global economy was in the midst of a financial crisis, while today the economy is generally stronger and more stable.
- After the crisis, mortgage lending practices tightened significantly, with lenders becoming more cautious about issuing loans to borrowers with poor credit or high levels of debt. This has resulted in a lower risk of default on mortgages.
- In many parts of the country, home values have skyrocketed and as a result, homeowners have record levels of equity.
- Buyer demand continues to outpace supply.
Overall, while there are certainly some similarities between the real estate market today and in 2008, the tight inventory has kept prices from seeing deeper declines. The level of growth we experienced in the last few years, however, is unprecedented and unsustainable and the likelihood of a correction in prices in 2023 is strong.