06/24/2024

The current housing market in 2024 differs significantly from the market conditions leading up to the 2007 housing crash, despite some superficial similarities.

Key Differences

Supply and Inventory:

2007: The market was characterized by an oversupply of homes. Housing starts were at a 30-year high, leading to a glut of inventory when demand dropped sharply. 

This oversupply contributed to a dramatic fall in home prices and a surge in foreclosures.

2024: The current market faces a shortage of inventory. New housing starts have not kept pace with demand, partly due to supply chain disruptions from the COVID-19 pandemic. This lack of supply has kept home prices elevated despite rising interest rates.

Lending Practices:

2007: The market was flooded with risky lending practices, including zero down payment loans, NINJA (no income, job, or asset verification) loans, and interest-only mortgages. These practices led to a high rate of defaults when the market turned.

2024: Lending standards have tightened significantly. Most mortgages are now fixed-rate, and borrowers are more thoroughly vetted. This has resulted in lower default rates and a more stable market.

Economic Fundamentals:

2007: Home prices were significantly detached from economic fundamentals, driven by speculative buying and easy credit. When the bubble burst, prices plummeted, leading to widespread economic fallout.

2024: While home prices have surged, they are more closely tied to economic fundamentals such as household incomes. Additionally, household balance sheets are generally stronger, and excessive borrowing is not as prevalent.

Similarities

Rapid Price Appreciation:

Both periods saw rapid increases in home prices. However, the current appreciation, while significant, is not as extreme as the pre-2007 levels.

Regional Overpricing:

Certain regional markets are experiencing significant overpricing, similar to the pre-2007 period. Markets like Phoenix and Las Vegas, which were heavily impacted in the last crash, are again showing signs of being overpriced.

Conclusion

While there are some parallels between the current housing market and the conditions leading up to the 2007 crash, key differences in supply, lending practices, and economic fundamentals suggest that the market is more resilient today. The current challenges are more about managing high prices and low inventory rather than dealing with an imminent crash driven by risky lending and oversupply.