Published June 22, 2023

Will history repeat itself? The great recession of 2008 Vs. 2023

Written by Wes Jones

Will history repeat itself? The great recession of 2008 Vs. 2023 header image.

For nearly a year, there has been growing concern about the possibility of a housing market crash. Given the affordability challenges in the housing market and the prevalence of recession talk in the media, it's understandable why this worry has surfaced. The truth is, consumers are far more likely to read about a pending crash vs good times ahead.

A closer look at the data reveals that today's market is fundamentally different from the conditions preceding the housing crash in 2008. Rest assured, we are not experiencing a repeat of the past. Let me explain why.

Financing Is Tougher Today

Obtaining a home loan has become more difficult compared to the period leading up to the 2008 housing crisis. Back then, banks had more relaxed lending standards, making it easy for almost anyone to qualify for a home loan or refinance an existing one. Consequently, lending institutions assumed greater risk, both in terms of the borrowers and the mortgage products offered. This, in turn, led to widespread defaults, foreclosures, and declining prices.

Presently, prospective buyers face significantly higher standards set by mortgage companies. To illustrate this difference, the graph below, which utilizes data from the Mortgage Bankers Association (MBA), demonstrates the varying levels of difficulty in obtaining a mortgage. The lower the number on the graph, the more challenging it is to secure a mortgage, while a higher number indicates increased ease.

Unemployment Recovered Faster

Another differentiating factor is the recovery of unemployment rates. While the pandemic caused a spike in unemployment over the past couple of years, the jobless rate has already rebounded to pre-pandemic levels (as indicated by the blue line in the graph below). The situation was markedly different during the Great Recession, with a significant number of people remaining unemployed for an extended period (as depicted by the red line in the graph below):

The quick recovery of jobs this time around has a positive impact on the housing market. With a substantial portion of the population gainfully employed, the risk of homeowners facing financial difficulties and defaulting on their loans is significantly reduced. This strengthens the foundation of today's housing market and minimizes the risk of a surge in foreclosures.

Low Inventory-This Will Continue To Be A Theme I Cover

Furthermore, there is currently a scarcity of homes available for sale, in stark contrast to the excess inventory during the housing crisis. The market at that time was flooded with homes for sale, many of which were short sales and foreclosures, leading to a drastic decline in prices. In contrast, today's shortage of inventory stems primarily from years of insufficient home construction.

The graph below, utilizing data from the National Association of Realtors (NAR) and the Federal Reserve, demonstrates how the current supply of homes compares to the crash. Presently, unsold inventory stands at a mere 2.6-month supply. There simply isn't enough inventory on the market for home prices to plummet as they did in 2008.

Record High Equity

Additionally, homeowners today have near-record levels of equity, thanks to the limited inventory of homes for sale that exerted upward pressure on prices throughout the pandemic (as shown in the graph below):

This substantial equity puts homeowners in a much stronger position compared to the Great Recession. Molly Boesel, Principal Economist at CoreLogic, explains the significance of this equity:

"Most homeowners are well positioned to weather a shallow recession. More than a decade of home price increases have given homeowners record amounts of equity, which protects them from foreclosure should they fall behind on their mortgage payments."

The graphs presented above should help alleviate any concerns you may have about a housing market crash today. This is the most up-to-date data and unequivocally demonstrates that the current market bears little resemblance to the conditions that led to the previous crash in 2008. It doesn't mean something else unforeseen can not happen, it just means the same thing is unlikely to happen.

Will history repeat itself? The great recession of 2008 Vs. 2023

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