- Rising home prices are triggering fears of a foreclosure crisis the likes of 2008.
- But Former Fed chair Ben Bernanke doesn't think there will be a housing crash this time.
- According to him, today's mortgages are of a "much higher quality" than those of the mid-2000s.
Skyrocketing housing prices are giving Americans 2008 flashbacks.
But Ben Bernanke, former chairman of the Federal Reserve from 2006 to 2014, says that he's not worried about a 2008 repeat, even though he is wary about the rising real estate prices.
"That's something that needs to be watched," he told The New York Times on Monday. But unlike in 2008, he said, "the mortgages that are being lent to buy these houses are generally much higher quality than the subprime mortgages of 15 years ago."
That might alleviate some concern, as many Americans are fearing a bubble like the one that burst a little over a decade ago, when cheap debt, incentives among mortgage lenders, and intricate financial engineering led many borrowers to take on mortgages they could not afford.
When that bubble popped, it caused a foreclosure crisis among homeowners, as well as a credit crisis for the investors who owned bonds backed by these underwater mortgages. The end result was a global recession that some Americans still haven't recovered from, specifically Black and Asian ones.
Now people are at the edge of their seats again — Google searches for "housing bubble" surged in March after the Fed increased its benchmark interest rate for the first time during the pandemic, setting already-high mortgage rates on an upward trajectory.
But there's a lot of evidence to support Bernanke's statement. Economists told Insider there are some major differences between the housing market now and the one of the late aughts. Today's market irregularities are due to a housing supply that can't meet demand, while the housing bubble of the mid-2000s was caused by greater access to mortgage financing. Stricter lending standards across the board mean that today's mortgage applicants typically have stronger financial footing than borrowers before 2008 did.
Data from First American shows that Americans' house-buying power is at record levels, and has more than doubled since 2006. Nominal median household income has increased approximately 40% from that time period, according to Census data.
"Last cycle, a dog could get a mortgage," Ali Wolf, the chief economist for Zonda, a homebuilding prop tech company, told Insider last month. "This cycle, we have far more stringent lending rules. Buyers today have good credit scores, reasonable debt to income ratios, and some skin in the game via down payment funds."
That's all on top of home values maintaining historic highs. Data shows that the average mortgage borrower currently owns about $185,000 in "tappable" home equity, or the amount of money a homeowner can access while retaining at least 20% equity in their homes, which mortgage lenders often require.
In contrast, the housing market crashed in 2008 and 2009 because many homeowners owed more than their houses were worth. With housing demand near historic highs, today's homeowner is more likely to sell their property than face a foreclosure — and that means a national housing crash is very unlikely.
"The housing market is in a much stronger position compared with a decade ago," Odeta Kushi, First American's deputy chief economist, previously told Insider. "Accompanied by more rigorous lending standards, the household debt-to-income ratio is at a four-decade low and household equity near a three-decade high."