Friday, August 26, 2022 / by Laura Larson
One of the key reasons why the market won’t crash this time is the current undersupply of inventory. Three major sources provide the housing supply:
- Current homeowners putting their homes up for sale
- Introducing brand-new houses to the market
- Distressed properties (short sales or foreclosures)
The facts simply don't support the idea that there would be an excess of inventory on the market, which would be required for the market to crash. So, in order to demonstrate why the housing market isn't about to implode, let's take a closer look at where inventory is coming from right now.
Current Homeowners Putting Their Homes Up for Sale
Even though the housing supply is increasing this year, there’s still a limited number of existing homes available.
Newly Built Homes Coming Onto the Market
There’s also a lot of talk about what’s happening with newly built homes today, and that may make you wonder if we’re overbuilding. But home builders are actually slowing down their production right now. Ali Wolf, Chief Economist at Zonda, notes: “It has become a very competitive market for builders where they are trying to offload any standing inventory.”
To avoid repeating the overbuilding that happened leading up to the housing crisis, builders are reacting to higher mortgage rates and softening buyer demand by slowing down their work. It’s a sign they’re being intentional about not overbuilding homes as they did during the bubble.
And according to the latest data from the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes this year. While this will add more inventory to the market, it’s not on pace to create an oversupply because builders today are more cautious than the last time when they built more homes than the market could absorb.
Distressed Properties (Short Sales or Foreclosures)
The last place inventory can come from is distressed properties, including short sales and foreclosures. Back in the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to secure a home loan they couldn’t truly afford. Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures.
As lending standards tightened since then, the activity started to decline. And in 2020 and 2021, the forbearance program was a further aid to help prevent a repeat of the wave of foreclosures we saw back around 2008.
That program was a game changer, giving homeowners options for things like loan deferrals and modifications they didn’t have before. And data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. These are a few of the biggest reasons there won’t be a wave of foreclosures coming to the market.
Although the housing supply is growing this year, the market certainly isn’t anywhere near the inventory levels that would cause prices to drop significantly. That’s why inventory tells us the housing market won’t crash. If you are considering selling and want to know more about the specific conditions in your area, connect with Laura Larson now!