You've likely heard some discussions about the economy and the possibility of a recession. It’s natural for this kind of talk to make people anxious about the housing market potentially crashing. If you're feeling that way, you're not alone. However, there’s no reason to panic. The housing market isn't poised for a crash at this moment.

Real estate journalist Michele Lerner states:

““A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply.”
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— Michele Lerner

With that definition in mind, here are two reasons why this isn't coming up anytime soon.

1. Demand for Homes Is Higher than Supply

One major factor that led to the housing market crash in 2008 was the excessive number of homes available for sale. Now, the situation has changed quite a bit.

A good rule of thumb is that a balanced housing market typically has about a six-month supply of homes. If there are more than six months’ worth of homes available, it means the supply is greater than the demand. On the other hand, if there are fewer than six months’ worth, it indicates that demand exceeds supply. The graph below provides context for the current situation using data from NAR.

The graph highlights housing supply across three different time periods. The red bar indicates that prior to the 2008 crisis, there was an excess with 13 months of supply. For reference, the gray bar represents a balanced market with six months of supply. Currently, the blue bar shows that we have just 4.2 months of supply available.

Basically, there are more buyers looking for homes than there are homes for sale at the moment. This means that demand is outpacing supply. When this occurs, home prices tend to remain stable or even increase, which is a sign of a healthy market rather than a housing crash.

Inventory levels can vary quite a bit from one market to another. In some areas, the supply of homes is pretty balanced, while others might have a bit of an oversupply, which can affect local prices. Still, the majority of markets are facing a shortage of available homes.

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), states that...

““We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”
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— Lawrence Yun, Chief Economist at the National Association of Realtors (NAR)

2. Unemployment Is Still Low

When people lose their jobs, it often becomes difficult for them to keep up with their mortgage payments, which can lead to having to sell their homes or even facing foreclosure. This was a significant issue during the 2008 financial crisis. Fortunately, the employment scenario today is much more stable.

This graph illustrates three distinct time periods, focusing on the unemployment rate. The red bar indicates the unemployment rate during the 2008 financial crisis, which peaked at a high of 8.3%. The gray bar represents the 75-year average, sitting at 5.7%. In contrast, the blue bar reflects today’s unemployment rate, significantly lower at just 4.1%.

People are currently working, earning income, and keeping up with their mortgage payments. This is one reason we’re not likely to see a repeat of the foreclosure wave we experienced in 2008. Additionally, with so many individuals employed, many are ready to purchase homes, which creates a demand that helps keep prices rising.

Today’s Housing Market Is Stronger than in 2008

It's natural to feel worried when you hear discussions about a recession and economic uncertainty. However, it's important to keep in mind that the housing market is in a much stronger position than it was back in 2008. As Rick Sharga, Founder and CEO of CJ Patrick Company, notes:

““Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis.”
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— Rick Sharga, Founder and CEO at CJ Patrick Company

Home demand continues to exceed supply, and unemployment rates are low. These two important factors are likely to keep the housing market stable and prevent a crash in the near future.

Bottom Line

The housing market has improved significantly since 2008, but it's essential to keep in mind that real estate conditions can vary greatly from one area to another.

Staying updated on our local market is important. If you have any questions or want to talk about how these factors are affecting our area, just let me know.