1. In 2008 mortgage standards were much lower.

It was hard not to get a mortgage in 2008. In 2021, it’s harder to qualify. The Urban Institute released their latest Housing Credit Availability Index (HCAI) which measures the percentage of owner-occupied home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.

The index shows that lenders were comfortable taking on high levels of risk during the housing boom of 2004-2006. It also reveals that today, the HCAI is under 5 percent, which is the lowest it’s been since the introduction of the index.

The report explains:

“Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

6 Simple Graphs Proving This Is Nothing Like Last Time | MyKCMThis is nothing like the last time.

2. Prices aren’t rising out of control.

Below is a graph showing annual home price appreciation over the past four years compared to the four years leading up to the height of the housing bubble. Though price appreciation was quite strong last year, it’s nowhere close to the rise in prices that preceded the crash.6 Simple Graphs Proving This Is Nothing Like Last Time | MyKCMThere’s a stark difference between 2008 and 2021. Appreciation is usually  3.8%. So, while current appreciation is higher than the historic norm, it is not accelerating out of control as it did in the early 2000s.

3. Instead of a  surplus of homes on the market there is a shortage.

A normal real estate market has  approximately six months supply of inventory. More than that is too much and will cause prices to depreciate. Less is a shortage and will lead to continued appreciation.

As the next graph illustrates, there were too many homes on the market in 2007. This caused prices to fall. Today, there’s a shortage of inventory causing an acceleration in home values.6 Simple Graphs Proving This Is Nothing Like Last Time | MyKCM

This is nothing like the last time.

4. New construction isn’t making up the difference in inventory needed.

Some may think new construction is filling the void. If we compare today to right before the housing crash in 2008, we see that an overabundance of newly built homes was a major challenge then, but isn’t now.6 Simple Graphs Proving This Is Nothing Like Last Time | MyKCMThis is nothing like the last time.

5. Houses aren’t becoming too expensive to buy.

There are three components in the affordability formula: 1.the price of the home,  2.the wages earned by the purchaser, and 3. the mortgage rate available at the time.

Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased, and the mortgage rate is about 3%. This translates into the average homeowner paying less of their monthly income toward their mortgage payment than they did in 2008. Here’s a chart showing that difference:6 Simple Graphs Proving This Is Nothing Like Last Time | MyKCMAs Mark Fleming, Chief Economist for First American, explains:

“Lower mortgage interest rates and rising incomes correspond with higher house prices as home buyers can afford to borrow and buy more. If housing is appropriately valued, house-buying power should equal or outpace the median sale price of a home. Looking back at the bubble years, house prices exceeded house-buying power in 2006, but today house-buying power is nearly twice as high as the median sale price nationally.”

This is nothing like the last time.

6. People are equity rich, not tapped out.

Prior to 2008, homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up. Prices have risen over the last few years, leading to over 50% of homes in the country having greater than 50% equity – and owners have not been tapping into it like before.

Here’s a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out almost $500 billion dollars less than before:

6 Simple Graphs Proving This Is Nothing Like Last Time | MyKCMDuring the crash, home values began to fall, and sellers were in a position where they owed more on the mortgage than the home was worth. Many opted to walk away from their homes. This led to a wave of foreclosures and short sales. Homes were sold at huge discounts, which lowered the value of other homes in the area. With the average home equity now standing at over $190,000, this won’t happen today.

This is nothing like the last time.

Bottom Line

If you’re concerned that we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.

If you’re ready to make a move, you can feel good about the current sentiment in theVIP signature-1 market and the advantageous conditions for today’s sellers. Let’s connect today to determine the best next step when it comes to selling your house this year.

At VIP Realty, we have helped thousands of people achieve their dream of homeownership. Greg Skinner is the undisputed leader in 43123 sales area. Greg takes pride in the relationships he builds while working relentlessly on his client's behalves selling commercial, industrial and high-quality residential properties.

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The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. VIP Realty does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. VIP Realty will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.