How is the 2024 Housing Market Different From 2008?
The 2024 housing market presents a vastly different picture compared to the crash of 2008, despite ongoing challenges. When the pandemic began in 2020, the Federal Reserve acted quickly to prevent an economic downturn by lowering interest rates to record lows. This led the average 30-year mortgage rate to fall to 2.97% in June 2020, sparking a housing boom. Remote work allowed many to move to more affordable locations, fueling unprecedented demand. Between December 2019 and June 2022, housing prices skyrocketed by 45% nationwide — a rate of growth that far outpaced wage increases and overall economic activity.
To stabilize the overheated market, the Federal Reserve began aggressively raising interest rates in late 2022. By December 2023, the average 30-year mortgage rate had reached 7.1%, a significant increase from pandemic lows. While this caused a slowdown in home sales and price appreciation, it also created concerns about a potential market crash reminiscent of 2008.
Will the Housing Market Crash?
The short answer as to will the housing market crash is a resounding "No!" A crash like the one that happened during the 2008 recession is unlikely, if not impossible, given the protections that have been put in place since that event. It's also important to remember why the 2008 housing crash occurred, which was not driven by increased affordability but rather due to predatory lending that targeted individuals who were not in a strong enough financial position to buy or maintain a home. Meanwhile, the pandemic led to increased affordability with a surge of newly-remote workers being able to branch out into suburban and rural areas where property costs less. In fact, this factor alone has been attributed as the cause of more than 60% of the increase in home prices. This is very much unlike what happened in the years leading up to 2008 when people were being given mortgages they truly couldn't afford, a practice that is now heavily regulated with multiple safeguards in place to ensure only appropriately sized mortgages are being signed. With that in mind, many people are worried that those who bought in at pandemic highs are now in trouble due to plummeting home values. It's true that a number of individuals could end up upside down on their home — meaning they owe more than it's worth — but that doesn't automatically mean they won't be able to afford to make their mortgage payments.
What's Different From The 2008 Recession?
Many factors make today's housing market starkly different from the pre-2008 recession environment, including better regulatory control. The primary differences to note include the Dodd-Frank Wall Street Reform and Consumer Protection Act. This was established to regulate lending activities. It led to major reforms, helping to ensure consumers weren't given unaffordable mortgages. As a result of the Dodd-Frank act, the Consumer Financial Protection Bureau (CFPB) was established, which is a federal agency that monitors the activity of lenders and other financial institutions and acts to protect consumers. Other regulatory bodies also exist, and the Dodd-Frank Act amended some existing laws as well. For instance, protections for whistleblowers who expose predatory lenders and other dishonest practices were increased, and so was the monetary reward for being a whistleblower in order to encourage action. In addition to these laws, more than anything, it's important to see that the situation overall is very different from 2008. The borrowers who took out mortgages over the last few years were in a strong financial position overall, with higher-than-average credit scores and savings. This is in stark contrast to the populations that were targeted with mortgages before the 2008 recession. Therefore, there areseveral factors make the 2024 market fundamentally different from the 2008 crisis:
- Stronger Lending Practices: In 2008, the housing crash was fueled by risky lending practices, subprime mortgages, and speculative buying. Today, lending standards are much stricter, with higher credit requirements and rigorous income verification. Homebuyers are generally in stronger financial positions than during the pre-2008 housing bubble.
- Low Inventory Levels: Unlike 2008, when an oversupply of homes caused prices to plummet, the current market is constrained by a persistent shortage of inventory. Builders have struggled to keep up with demand, and many homeowners are hesitant to sell due to high mortgage rates, creating a tighter market.
- Homeowner Equity: Homeowners today have significantly more equity in their properties compared to 2008. The sharp rise in home values over the past few years has left most homeowners in strong financial positions, reducing the likelihood of widespread foreclosures.
- Resilient Demand: While affordability remains a challenge due to higher mortgage rates, demand for homes has not evaporated. Millennials, the largest demographic group in the U.S., continue to enter their peak homebuying years, sustaining interest in the market.
While the higher mortgage rates in 2024 have tempered the housing market's pace, these distinctions demonstrate that today's housing market is not on the brink of a collapse like in 2008. Instead, it is undergoing a much-needed correction, paving the way for gradual stabilization in the years ahead.
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