Many of us weren't familiar with the term "housing bubble" until the real estate market crash that shook the nation back in 2008. And while today's housing market looks very different, some experts are sounding a warning about a looming crash.
But while it's true that today's home prices aren't sustainable and that the housing market could be headed for a correction, we're not nearly in the same boat today as we were back in 2008. Here's why.
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1. Lending practices have tightened up
A big reason so many people got into trouble back in 2008 was that they got in over their heads financially when they purchased their homes. Back then, lenders didn't scrutinize buyers to the same degree and were more free about dishing out home loans. And many buyers took advantage of that situation, knowing full well that they were stretching their budgets to purchase a home in the first place.
These days, lenders aren't as quick to approve mortgage candidates. That means more homeowners should be in a position where they can actually afford to keep paying for their homes.
2. Fewer homeowners are underwater on their mortgages
In 2008, home values sank, leaving many property owners underwater on their mortgages. These days, home values are up substantially, to the point where property owners are sitting on record levels of equity.
Even if home values start to drop, there's a lot of room for that to happen without today's property owners ending up underwater on their home loans. And while home prices should start to fall at some point -- maybe even in the near term -- that shouldn't happen to an extreme degree due to the current state of housing inventory.
3. There's enough inventory to keep demand strong
Back in 2008, the real estate market was flooded with inventory. That's far from the case today. In fact, a solid lack of inventory is a big reason why we're unlikely to experience a full-blown housing market crash anytime soon.
When the value of a given commodity drops quickly and sharply, it's usually due to its supply exceeding demand. But even if buyer demand drops -- which could happen if a recession were to hit or if mortgage rates keep climbing -- there's such little inventory right now that that scenario most likely wouldn't send home values plummeting. Rather, we'd most likely be looking at a gradual and even mild decline.
Don't lose sleep over the housing market
Whether you're a homeowner or real estate investor, the idea of a housing market bubble bursting is apt to cause you stress. But right, there's no need to lose sleep over a potential housing market crash.
The reality is that home prices can't stay this high forever. But that doesn't mean properties are about to shed value to an extreme degree, either. Thankfully, we're in a very different place than we were back in 2008, and that means fewer people are likely to get hurt even if housing market conditions do take a turn for the worse.
