Is the 2020 Housing Market Turning Into the 2008 Housing Market?

The Great Recession from 2008 brought hardship to the housing market. Many Americans were hit with financial hardships, lost homes and jobs. The Great Recession stemmed from the housing and mortgage crisis. Today, the housing market is under pressure with the economic slowdown from COVID-19. Although we are facing a challenge today, there are several differences between today’s housing market and the housing market in 2008.

The first difference we see is appreciation. In 2008 the years that led up to the crash had a higher appreciation than the years leading up to COVID-19. The highest level seen before COVID-19 was below the lowest level seen before the Great Recession.

Next, we see a difference in mortgage credit. Mortgage credit is based on the Mortgage Credit Availability Index which is a monthly measure put out by the Mortgage Bankers Association. The Mortgage Association will determine the level of difficulty to secure a loan. This means the higher the index, the easier it is to get a loan or the lower the index, the harder it is to secure a loan. Before the 2008 crash, the index was very high. Today, before the economic downturn the lending standards have been much more conservative.

Another difference seen before the crash is the number of homes for sale. In 2008 there was an overabundance of homes for sale throughout the country. In 2020 we do not have enough homes for sale. Currently, there are less than 6 months of inventory across the nation.

The use of home equity is also quite different. In 2008 many homeowners were cashing out the equity in their home, but today homeowners are being much more conservative with their home equity. Before the Great Recession, $824 billion was cashed out across the nation. Leading up to the pandemic, the total of home equity cashed out was $232 billion. Currently, 53.8% of homes have at least 50% equity while in 2008 homeowners owed more than what their home was worth.

The good news is that the housing market today is in a much more stable position during the health crisis. Hopefully, the housing market will help pull the country up from the current economic downturn.

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