Housing Market Crash Like 2008 is Unlikely According to Economists

2008 - just 14 years ago - our generation saw the biggest housing crash since the Great Depression, which ushered in our own Great Recession. In the years leading up to the crash, the real estate market seemed to be on fire. Much like today, home prices were on the rise and demand was strong. Seemingly surface similarities to today’s real estate market have had many average Americans on edge, worrying that another housing market crash could be on the horizon. Many leading economists, however, believe that a real estate bubble burst followed by a market crash is “very unlikely.” Why is this the case? According to the chief economist for real estate and mortgage financial institution First American, Odeta Kushi, the biggest reason is that the market today is fundamentally different than it was in 2008, and the underlying causes of the irregular markets seen in 2008 and today are simply not the same.

The Great Recession was certainly caused, in large part, by a housing market crisis in 2008. At the time, housing prices were rising - much like today. Loose lending practices nationally and rising rates of subprime mortgages pushed housing prices to untenable heights and put Americans in homes with mortgages that they simply could not afford long-term. The resulting defaults and foreclosures destroyed the real estate market and devastated the financial institutions that had backed the subprime mortgages. The federal government was forced to intervene and bail out the banks to avoid a depression.

Since 2008, predatory lending practices, which caused the debacle of 2008, have been all but eradicated. Lenders have put in place new standards that help to guarantee that borrowers are qualified and financially capable to sustain loans. Most of the conditions that led to the housing market crash of 2008 just do not exist in today’s market.

Instead of predatory lending and artificially high housing prices, the issues facing today’s real estate market largely stem from a lack of balance between housing demand and housing supply. There are simply not enough homes to meet the demand of buyers nationally, which has driven up home prices to record levels. Buyers today are qualified to purchase properties at a higher rate. Strict lending practices are in place so that buyers cannot receive unaffordable mortgages anymore. So, while many simply cannot afford to purchase a home today, those that are purchasing are qualified to do so. This key difference, according to economists around the country, is what will prevent a housing bubble burst like we saw in 2008. The losers today are not the buyers who cannot afford their mortgage, but the buyers who cannot get one to afford a home at these skyrocketing prices.

The Florida Keys real estate market is experiencing a microcosm of what is being felt across the county, with rising home prices and depleted inventory. Our market is saturated, often with those purchasing second or third homes, keeping prices steadily on the rise. While there may be no burst on the horizon, it is sure that many buyers are looking for relief in this competitive and difficult market.