Housing Market: 2008

With an impending recession, many people are wondering what impact it will have on the housing market. 

In 2008, the Great Recession started with a housing and mortgage crisis. Several factors led up to a crash: high levels of appreciation, loose standards for mortgage loans, an oversupply of homes for sale, and low levels of home equity. Homeowners were able to obtain mortgages that did not fit their budgets, and many had the opportunity to refinance for cash so they could spend equity elsewhere. 

Because of this, in 2008, there was a 19.7% decrease in home prices. This housing crisis is fresh in people’s minds and easily creates confusion about the current situation.

In a study of the last five recessions, 2008 is the only year when there was a significant decrease in price (-19.7). In 1991, there was a slight decrease - just 1.9% - and in 1980, 1981, and 2001 recessions, home prices INCREASED. 

Keeping Current Matters

Housing Market: 2020

Mortgage lenders and homeowners learned many lessons from 2008, and it shows in the statistics leading up to the current market:

• Annual home price appreciation rates have been rising - but at a more stable rate than in 2008. 

• Banks and mortgage lenders tightened their standards for loan applications immediately after the 2008 recession, and have remained steady over the past decade. 

• Inventory is low, which means there are fewer homes on the market than there are buyers.

• More than 53% of homes today have at least 50% equity, with 37% of homes being owned free and clear. 

Recovery

Keeping Current Matters

So what does this mean for the 2020 housing market? Many major financial institutions are forecasting a V-shaped recovery. 

A V-shape recovery indicates a brief period of sharp economic decline. The bottom does not last long, and is followed by a steep recovery. A full recovery period can take less than one year.

 A U-shape recovery, by contrast, is a more gradual decline, followed by a moderate recovery, which gradually picks up speed. U-shaped recoveries may last 12-24 months.

Finally, an L-shaped recovery is a period of steep economic decline, followed by no growth for an extended period. A full recovery can take years. 

No one can fully predict what will happen throughout the rest of the year. Historically speaking, after a pandemic, a V-shape recovery typically takes place. 

Harvard Business Review states,

“It’s worth looking back at history to place the potential impact path of Covid-19 empirically. In fact, V-shapes monopolize the empirical landscape of prior shocks, including epidemics such as SARS, the 1968 H3N2 (“Hong Kong”) flu, 1958 H2N2 (“Asian”) flu, and 1918 Spanish flu.”

Most experts agree that we are headed for a recession, but this time, the housing market will make a strong comeback.