As house prices rise, talk of a housing bubble bursting has gained momentum.
Many are making comparisons to the bubble that led to the 2008 housing crash.
But economists say a similar slump is unlikely to occur because two buyers are now better off.
The real estate market may be out of control, but that doesn’t mean we’ll see a crash like 2008, two real estate economists told Insider.
Homebuyer demand continues to outstrip the number of homes available for sale and has pushed housing costs to new highs. As some of the factors that contributed to the housing bubble of the early 2000s re-emerged, talk of an impending collapse gained momentum.
“The housing market is showing signs of foam, no doubt,” Ali Wolf, chief economist at Zonda, a building construction technology company, told Insider. “Because of this, a lot of people started making comparisons with the housing boom of the mid-2000s.”
But while many fear an implosion similar to the 2008 housing slump, some economists say homebuyers are in a much better position this time around.
“This isn’t the same market as it was in 2008,” Odeta Kushi, First American’s deputy chief economist, told Insider. “It’s no secret that the housing market played a central role in the Great Recession, but this market is fundamentally different in so many ways.”
According to Kushi, today’s market irregularities are attributed to an imbalance between supply and demand, while the housing bubble in the mid-2000s was caused by wider access to mortgage financing. This time, he added, household finances are stronger and home values remain at an all-time high.
The housing bubble that triggered the 2008 crisis was created by a combination of cheap debt, predatory lending practices and financial engineering that resulted in many borrowers being forced into inaccessible mortgages. When the situation reached boiling point, it triggered a foreclosure crisis among homeowners and a credit crisis among investors who held defaulted mortgage-backed bonds and ushered in a global recession.
During that economic downturn, household wealth declined for millions of Americans. From late 2007 to mid-2009, the Bureau of Labor Statistics says nearly 9 million Americans lost their jobs. At the same time, the median U.S. household income fell from $ 54,489 in 2007 to $ 52,195 in 2009.
In 2022, nearly all American households rebuilt their nominal net worth to pre-recession values. Although the pandemic has put the economy in crisis, the labor market has made up 93% of the jobs lost and the unemployment rate now stands at just 3.6%. Lending standards have also tightened and home values have rebounded to record highs, which is why Kushi believes the housing market is in a far better position than in 2008.
Lupo agrees. Although there are some similarities to the housing boom of the mid-2000s, the key difference is the type of buyer in today’s market, he said, “One of the big differences is the quality of the home buyer. The last cycle, a dog could get a mortgage. This cycle, we have much stricter lending rules. “
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