Housing Market: Not Your Daddy's 2008 Market

Have you heard others try to compare our current housing market to the one that led up to the "boom and bust" that we painstakingly experienced a decade ago? They look at price appreciation and conclude that we are on a similar path, speeding toward another housing crisis.

Like Apples and Oranges

However, there are several differences between the two markets. Last decade, while demand was being artificially created by extremely loose lending standards and practices, a tremendous amount of inventory was coming to the market to satisfy that demand. Below is a graph of the inventory of homes nationally available for sale leading up to the 2008 crash.

A normal healthy market should have approximately 6 months supply of housing inventory. As we can see, that number jumped to over 11 months supply nationally leading up to the crisis. When the banks were called out for their questionable lending practices and ceased them demand tanked and there was a glut of inventory on the market. This caused prices to drop like the proverbial lead balloon. Locally, here in Vancouver, Washington, at one point we had over 27 months of housing inventory waiting to be sold. 

Today is dramatically different!

Some talking heads like to tell us that low mortgage rates have created an artificial demand in the current market. They fear that if mortgage rates continue to rise, some of the current demand will dry up like a sponge in Death Valley...and that's a possibility.

However, if we look at supply again, we can see that the current supply of homes is well below the norm of 6 months.  

Several factors have contributed to the current situation of low home inventory. Arguably, the increased complication of development with local municipalities across the nation have contributed to this issue. The longer it takes and more costly it is to develop and build a home creates a lower inventory. Nationally, the current level of home inventory is less than 4 months. Once again, here in Vancouver, Washington it's less than 2 months. 

Big Bottom Line

If and when the housing market cools off we will not have a glut of inventory like we did back in 2008 and home values won't come rocketing down. Instead, if demand weakens, we will return to a normal market (approximately a 6 month supply) with more historic levels of appreciation of less than 4%. 

Scott C. Dickinson is a real estate broker that resides in Vancouver, WA. He can be reached by email at ScottYourBroker@gmail.com or www.scottdickinsonauthor.com. 
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