There Is a “Critical Difference” Between the Current Housing Market and the 2008 crash.
The housing market crashed in 2008, closer to the end of that decade, and the Great Recession, an economic disaster, ensued. A “critical difference” between the current housing market and that in the mid-2000s prior to the 2008 crash is that “there just isn’t enough home supply currently,” according to Philipp Carlsson-Szlezak and Paul Swartz in an article published by Fortune on Tuesday.
Boston Consulting Group’s managing director and partner in the company’s New York office, Carlsson-Szlezak, serves as the organization’s top economist globally. Swartz is a senior economist and director of the Henderson Institute of the Boston Consulting Group.
Consumer trust in the U.S. housing market has dropped to its lowest since 2011, according to data from the Fannie Mae Home Purchase Sentiment Index (HPSI), released on Monday. The study results, according to the government-sponsored agency, demonstrate that consumers are becoming more gloomy about the state of the buying and selling markets in the United States.
As rising mortgage rates continue to have an impact on housing affordability, the HPSI has been slowly declining for much of the year, according to a statement from Doug Duncan, senior vice president and chief economist at Fannie Mae. Consumers are increasingly citing high mortgage rates as the main cause of the growing belief that now is not a good time to buy or sell a property. Overall, he continued, “this month’s HPSI statistics seem to validate our forecast for decreasing home sales over the following year.”
According to the financial website Investopedia, a housing bubble often starts with a rise in housing demand and a consequently low supply, which can lead to an increase in home prices. The COVID-19 epidemic brought about this rise in demand.
The market “screeched to a standstill” during the initial March 2020 closure, but it recovered that summer, according to the U.S. Census Bureau. Even while inventories increased that summer, it couldn’t keep up with the increase in sales. Additionally, according to Zillow research, there were fewer homes for sale in 2020 than there were in 2019, which the bureau described as generating “hyper-competitive circumstances” in the housing market.
Due to the lower risk of not being able to sell homes when there are few on the market, today’s low housing inventories are consistent with ongoing building activity even in the face of rising rates, they said. According to a Freddie Mac analysis published in 2021, there were 3.8 million housing shortages as of the fourth quarter of 2020, rising nearly 52 percent from the previous year. Additionally, according to a recent Up For Growth analysis, even before the pandemic in 2019, there were not enough homes in more than half of the U.S. urban areas, CBS reported. Comparatively, a graph from the Federal Reserve Bank of St. Louis revealed that the supply of housing increased dramatically between 2005 and 2008. Even if the housing market to collapse, analysts question whether it would be as severe as the recession of 2008.