Think This Is a Housing Crisis? Here are five aspects to consider...

Think This Is a Housing Crisis? Think Again. | MyKCM

There is so much uncertainty caused by the pandemic and the economic pain we are encountering across the country persists. Until the number of listings normalizes, we have access to apartments, can provide access to buyers, and see how historic unemployment factors in, it is difficult to determine what will happen to home values. I am hearing from a lot of clients asking me if the housing market is in trouble. While nobody knows for sure based on these factors, there is a lot of talk about how this market will compare to 2008. For those who were around in 2008, it's understandable that one would ask that question. However, the best real estate decision I ever made was during that time of uncertainty. So, it got me thinking, what is different?

At that time, a lot of us experienced financial hardships, lost homes, and were out of work during that "Great Recession". However, that recession was ignited by a housing and mortgage crisis. Today, we face a completely different challenge: an external health crisis that has caused a pause in much of the economy and a major shutdown of many parts of the United States.

Let’s look at 5 things we know about today’s housing market that were different in 2008. In case you are used to scrolling on Instagram like I am, I have also included a few infographics to support the narrative.

1. Appreciation

When we look at the increase in home prices in the image below, there is a significant difference between the six years prior to the housing crash and the most recent six-year period of time. Leading up to the crash, we had much higher appreciation in this country than we see today. In fact, the highest level of appreciation most recently is below the lowest level we saw leading up to the crash. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation.Think This Is a Housing Crisis? Think Again. | MyKCM

2. Mortgage Credit

The Mortgage Credit Availability Index is a monthly measure by the Mortgage Bankers Association that gauges the level of difficulty to secure a loan. The higher the index, the easier it is to get a loan; the lower the index, the harder. Today we’re nowhere near the levels seen before the housing crash when it was very easy to get approved for a mortgage. After the crash, however, lending standards tightened and have remained that way leading up to today.Think This Is a Housing Crisis? Think Again. | MyKCM

3. Number of Homes for Sale

One of the causes of the housing crash in 2008 was an oversupply of homes for sale. Today, as shown in the next image, we see a much different picture. We don’t have enough homes on the market for the number of people who want to buy them. Across the country, we have less than 6 months of inventory, an undersupply of homes available for interested buyers. Manhattan has experienced an oversupply in recent years mostly driven by New Development, but prior to COVID-19, we were seeing postive signs of activity.Think This Is a Housing Crisis? Think Again. | MyKCM

4. Use of Home Equity

The comparative in this section shows the difference in how people are accessing the equity in their homes today as compared to 2008. In 2008, consumers were extracting equity from their homes (through cash-out refinances) and generally speaking people were utilizing the surplus to fund their lifestyles. Today, we are seeing home owners treating the equity in their homes much more cautiously.Think This Is a Housing Crisis? Think Again. | MyKCM

5. Home Equity Today

For those that like to analyze numbers, today, 53.8% of homes across the country have at least 50% equity. In 2008, homeowners were abandoning their homes when they were "underwater" (meaning owed more than what their homes were worth). With the equity homeowners have now, they’re much less likely to walk away from their homes.Think This Is a Housing Crisis? Think Again. | MyKCM

Bottom Line

The COVID-19 crisis is causing different challenges across the country than the ones we faced in 2008. Back then, we had a housing crisis; today, we face a health crisis. What we know now is that housing is in a much stronger position today than it was in 2008. It is no longer the center of the economic slowdown. Rather, it could be just what helps pull us out of the downturn.

We all know that NYC is completely different from most of the country. If you are interested in seeing detailed information on the how the pandemic will impact the housing market in Manhattan contact me.