- The 2008 housing crisis was brought on by a wave of foreclosures.
- Americans are fearful the real estate market is repeating history.
- But that's not likely to happen as today's homeowners are in a far better financial position.
The real estate market's wacky dynamics have Americans fearful of an impending crash in 2008.
As some of the factors that contributed to the housing bubble of the mid-2000s reemerge, it's no wonder experts and prospective homebuyers are sounding the alarm.
Just like in the mid-aughts, prospective homebuyers are facing ever-rising prices and bidding wars over houses on the market. "As interest rates and home prices rise, we are seeing more and more buyers either get priced out of the market or stretch their budgets to be able to lock in a property," Ali Wolf, the chief economist for Zonda, a homebuilding prop tech company, told Insider. "Fear of missing out is back big time in the market."
Despite this sense of deja vu, the real estate market is actually in a far better place than the early 2000s – and that means it's unlikely to repeat history.
Stricter lending standards mean that 2022's mortgage applicants tend to have a firmer financial footing than borrowers in the pre-2008 days. "Last cycle, a dog could get a mortgage," Wolf said. "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."
This couldn't be said during the last housing cycle — a time when a combination of cheap debt, predatory lending practices, and complex financial engineering led to borrowers being placed into mortgages they could not afford.
According to TransUnion, between 2007 and 2008 alone, the mortgage delinquency rate rose by 53% as those less-financially secure borrowers struggled to pay their bills. When the situation reached a boiling point, it provoked a foreclosure crisis among homeowners and a credit crisis among the investors who owned bonds backed by defaulted mortgages — and also triggered a global recession.
The economic downturn led to millions of Americans losing tremendous household wealth. The Bureau of Labor Statistics says nearly 9 million Americans lost their jobs from late-2007 through mid-2009. During that time, the median US household income also declined from $54,489 in 2007 to $52,195 by 2009. By the end of 2009, more than more than 3.9 million foreclosure notices had been issued.
"It's no secret the housing market played a central role in the Great Recession," Odeta Kushi, First American's deputy chief economist, told Insider. "But this market is just fundamentally different in so many ways."
The COVID-19 housing market is a vastly different landscape.
Although the pandemic weakened the economy, Americans are doing fairly well financially. The labor market has recovered 93% of its lost jobs and the unemployment rate now sits at 3.6%. The majority of American households have also rebuilt their nominal net worth to pre-recession values.
With more than $3.2 trillion in home equity gained in 2021 alone, and nominal median household incomes approximately 40% higher than 2006, homeowners concerned with mounting housing costs can just sell their properties — and that means a foreclosure wave is unlikely anytime soon.
This paired with the fact that lending standards have tightened and home values have rebounded to record highs means the real estate market hardly resembles that of the mid-2000s.
"The housing market is in a much stronger position compared with a decade ago," Kushi said. "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."