I totally get that you might be concerned about a housing crash happening again, especially after what we experienced in 2008. But let me tell you, this housing market is quite different for a bunch of reasons. One big factor is that the lending standards nowadays are not the same as they were back in the day. Don't just take my word for it though, let's dig into the data and see for ourselves!

Every month, the Mortgage Bankers Association (MBA) releases the Mortgage Credit Availability Index (MCAI). According to their website:

““The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.””

So, basically, the index is like a measure of how easy or difficult it is to get a mortgage. If you take a look at the graph below, you'll see the MCAI (Mortgage Credit Availability Index) since they started keeping track of this data back in 2004. This graph gives us a great view of how lending standards have changed over time. Think of it as a way to see how easy or hard it was for people to qualify for a mortgage.

• When lending standards are less strict, it’s easier to get a mortgage, and the index (the green line in the graph) is higher.

• When lending standards are stricter, it’s harder to get a mortgage, and the line representing the index is lower.

Back in 2004, the index was sitting at around 400 – pretty modest, right? But guess what? Just two years later, in 2006, it skyrocketed to over 850! It was quite a jump, let me tell you.
However, things took a turn after the crash. The lending standards became stricter, and as a result, the index started to decline. Fast forward to today, and it's a whole new story. Getting a mortgage has become much harder compared to before. So yeah, times have changed, my friend.

Loose Lending Standards Contributed to the Housing Bubble

One of the main factors that contributed to the housing bubble was that lending standards were a lot less strict back then. Realtor.com explains it like this: 

““In the early 2000s, it wasn’t exactly hard to snag a home mortgage. . . . plenty of mortgages were doled out to people who lied about their incomes and employment, and couldn’t actually afford homeownership.” ”

Wow, if you look at that graph, you can see that before the housing crisis, it was way easier to get credit. The big spike shows that the requirements for getting a loan were pretty relaxed. Basically, back then, almost anyone could get a loan because credit was so widely available. The bar for qualifying was set really low.

Here's the deal: lenders were actually giving the green light for loans without always going through the usual verification process. Basically, they were skipping the step to confirm if the borrower would be able to pay back the loan. Now, that's kind of a big deal because it meant that more borrowers who might have had a higher chance of not being able to repay the loan were actually getting approved. So, it was like the creditors were taking a bigger risk by lending to these folks.

Today’s Loans Are Much Tougher To Get than Before

As mentioned, lending standards have changed a lot since then. Bankrate describes the difference: 

““Today, lenders impose tough standards on borrowers – and those who are getting a mortgage overwhelmingly have excellent credit.””

Take a look at the graph for a sec. Notice how after the big housing crash, the line representing the index took a nosedive and has been hanging out at a pretty low point ever since. Actually, it's way below where things were back in 2004, and it's still dropping. Joel Kan, who's the VP and Deputy Chief Economist at MBA, has the latest scoop from May.

““Mortgage credit availability decreased for the third consecutive month . . . With the decline in availability, the MCAI is now at its lowest level since January 2013.””

The decreasing index suggests standards are getting much tougher – which makes it clear we’re far away from the extreme lending practices that contributed to the crash.

Bottom Line

So, back when the housing crash happened, lending standards were way more chill. There wasn't much scrutiny given to make sure that borrowers could actually pay back their loans. But things have changed, my friend. Nowadays, lending standards are a lot stricter, and that's a good thing. It helps reduce the risk for both lenders and borrowers. This just proves that we're dealing with two completely different housing markets. So, don't worry, this time around is not the same as last time.