As you navigate through the myriad of headlines and media discussions surrounding the current state of the South Bend real estate market, it’s only natural for thoughts of a housing bubble and echoes of the 2008 crisis to emerge. However, it is crucial to take solace in the concrete data that underscores the marked differences between then and now.
1. Supply and Demand Dynamics: An Unmatched Scenario
To provide the necessary historical context, the housing crisis in 2008 was marked by an overabundance of homes for sale, including numerous short sales and foreclosures. This surplus in inventory resulted in a significant drop in home prices. However, the present situation is entirely different. Although the supply has expanded this year, there is still a shortage of available homes overall. This shortage stems from nearly 15 years of underbuilding. The graph below, utilizing data from the National Association of Realtors (NAR), offers a visual representation of the disparity between the months’ supply of homes currently available and the situation during the crash. Today, the unsold inventory stands at just a 3.2-months’ supply at the current sales pace, which is significantly lower than the last time. In essence, there isn’t enough inventory in the market for home prices to plummet as they did in the past, although some overheated markets might experience minor declines.
2. Mortgage Standards and Lending Practices: A Much-Needed Transformation
Leading up to the housing crisis, obtaining a home loan was notably easier than it is today. Banks lowered lending standards and made it more accessible for individuals to qualify for a home loan or refinance their existing home. This led to a surge in risky mortgages, defaults, foreclosures, and declining prices. Presently, the standards set by mortgage companies are far more stringent, ensuring that buyers meet higher qualifications. The Mortgage Credit Availability Index (MCAI) data from the Mortgage Bankers Association (MBA) demonstrates this difference, with the index showing a 5.4% decrease in the latest report, indicating tightening standards. This graph underscores the disparity in lending practices between the past and the present. The stricter lending standards over the past 14 years have played a significant role in preventing a scenario that could trigger a wave of foreclosures like the previous crisis.
3. Foreclosure Activity: A Marked Decline
The number of homeowners facing foreclosure after the housing bubble burst is incomparable to the current scenario. Foreclosure activity has remained lower since the crisis due to the higher qualifications of today’s buyers and their reduced likelihood of loan default. The graph below, using data from ATTOM Data Solutions, depicts this substantial difference. Additionally, today’s homeowners have options that were scarce during the housing crisis when many individuals owed more on their mortgages than their homes were worth. A considerable number of homeowners now possess substantial equity in their homes, primarily attributed to the appreciation of home prices over time. As per CoreLogic, “The total average equity per borrower has now reached almost $300,000, the highest in the data series.” Rick Sharga, Executive VP of Market Intelligence at ATTOM Data, elaborates on the implications, “Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”
This illustrates that homeowners are in a significantly different position this time around. For those facing challenges today, many have the option to leverage their equity to sell their homes and avoid the foreclosure process.
4. Economic Resilience: A Stronger Foundation
The current economic landscape is more robust than it was during the 2008 crisis. Economic indicators, employment rates, and the overall financial health of the nation paint a much more stable picture. This resilience provides a fundamental support system for the real estate market, helping to ensure that it remains on a sustainable course.
If you’re concerned that we are on the brink of repeating the same mistakes that led to the housing crash, the data and insights presented above should alleviate your fears. It’s clear that this situation is fundamentally distinct from the past, offering a more stable and resilient real estate market in South Bend, Indiana. This market is poised to provide sound investments and greater opportunities for both buyers and sellers, even in the face of historical comparisons.
