Not the Great Recession
With a
very limited inventory of available homes coupled with over a decade of tight
lending standards, housing values will not nosedive like they did during the
Great Recession.
An astonishing 41% of Americans think that the housing market is
going to crash in the next 12 months, according to a survey conducted by
LendingTree. Even more revealing is that 74% of those who believe there will be
a crash think it will be as bad or worse than the “2008 housing market
collapse.” With so many convinced that a crash is inevitable, does that mean
that housing will once again collapse?
Everyone across the nation recalls watching the housing market
take a brutal pounding during the Great Recession. So many homeowners were
burned as values toppled and their equity vanished seemingly overnight. It
either happened to everybody personally or they knew somebody who felt the
severe impact of the downturn. It is understandable that whenever there is an
economic slump, the general public immediately recalls the Great Recession and
expects the housing market to tumble once again.
Everyone expected a housing crash in 2018 when rates rose from
4% to 5%, but it did not materialize. It did not crash after the initial
lockdowns of COVID, yet so many were convinced otherwise. Once again, with
mortgage rates rocketing higher, home values already on the decline, and a
recession on the horizon, many Americans believe that the housing market is on
the edge of a precipice and home values are about to plummet. Even though so
many feel a housing crash is eminent, and that it could be worse than the Great
Recession, according to all the economic data, current trends, lending
standards, and the health and strength of homeowners across the United States,
there is no crash in sight, not now, not in the next 6-months, and not in the
foreseeable future.
The number one reason why a crash will not occur is that there
simply are not enough available homes to purchase. When the inventory builds,
it takes a lot longer to sell. When the unsold inventory rises above 200 days,
negotiations lean heavily in favor of buyers and home values fall rapidly. The
unsold inventory in Los Angeles County, according to the California Association
of REALTORS®, reached a peak for 2022 in October at 123 days. The peak for 2021
was 63 days, much faster than today. The 3-year average unsold inventory peak
prior to COVID (2017 to 2019) was 136, slightly slower than today. In comparing
today’s unsold inventory to the two years leading up to the Great Recession, 2006
and 2007, the difference is stunning. The unsold inventory peak in 2006 was 288
days, and it was 590 in 2007.

The unsold inventory remains much lower than in the years leading up to the Great Recession because the supply of available homes today remains at very low levels. The number of homes available today is 9,711. While there were 36% fewer homes last year, 6,196, the 3-year average prior to COVID (2017 to 2019) was 10,998 homes, 13% more than today. The inventory has been stuck at anemic levels since the beginning of the pandemic. In comparison, the inventory in 2006 exceeded 20,000 homes, and it surpassed 30,000 in 2007. In sharp contrast to today’s lack of available homes, there was an inventory glut that led up to the Great Recession.
Despite a lower unsold inventory, home values are still dropping today due to mortgage rates doubling from the start of the year. Yet, they are not tumbling at the accelerated pace of 2007 and 2008 when home values sank by nearly 40%. That will not happen today because of the limited number of homes available to purchase where homeowners are simply choosing not to list their homes. So far this year, through November, there have been 13,893 fewer sellers compared to the 3-year average prior to the pandemic, 16% less. There is no panic selling. Housing is not a commodity. Everyone needs a roof over their heads, someplace to call home. There is also an extreme lack of forced selling, homeowners that “have to sell.” During the Great Recession, over 10% of all outstanding mortgages were delinquent. Today’s national delinquency rate is at its lowest level in decades. In Los Angeles County, there are 75 foreclosures and short sales available to purchase today. In mid-December 2019, prior to COVID, there were 118, and in December 2012, the start of the expansion and after the Great Recession, there were over 2,169.
Even with sky-high mortgage rates and home values on the decline, housing is insulated from a housing crash. Today’s housing stock is built on an extremely strong foundation with years of tight lending standards due to financing laws enacted after the Great Recession, strong credit scores, large down payments, fixed rate mortgages, plenty of nested equity, and limited cash-out refinances. There is no crash in sight because of the strength of the homeowner coupled with a very limited inventory of available homes to purchase today.

The unsold inventory remains much lower than in the years leading up to the Great Recession because the supply of available homes today remains at very low levels. The number of homes available today is 9,711. While there were 36% fewer homes last year, 6,196, the 3-year average prior to COVID (2017 to 2019) was 10,998 homes, 13% more than today. The inventory has been stuck at anemic levels since the beginning of the pandemic. In comparison, the inventory in 2006 exceeded 20,000 homes, and it surpassed 30,000 in 2007. In sharp contrast to today’s lack of available homes, there was an inventory glut that led up to the Great Recession.
Despite a lower unsold inventory, home values are still dropping today due to mortgage rates doubling from the start of the year. Yet, they are not tumbling at the accelerated pace of 2007 and 2008 when home values sank by nearly 40%. That will not happen today because of the limited number of homes available to purchase where homeowners are simply choosing not to list their homes. So far this year, through November, there have been 13,893 fewer sellers compared to the 3-year average prior to the pandemic, 16% less. There is no panic selling. Housing is not a commodity. Everyone needs a roof over their heads, someplace to call home. There is also an extreme lack of forced selling, homeowners that “have to sell.” During the Great Recession, over 10% of all outstanding mortgages were delinquent. Today’s national delinquency rate is at its lowest level in decades. In Los Angeles County, there are 75 foreclosures and short sales available to purchase today. In mid-December 2019, prior to COVID, there were 118, and in December 2012, the start of the expansion and after the Great Recession, there were over 2,169.
Even with sky-high mortgage rates and home values on the decline, housing is insulated from a housing crash. Today’s housing stock is built on an extremely strong foundation with years of tight lending standards due to financing laws enacted after the Great Recession, strong credit scores, large down payments, fixed rate mortgages, plenty of nested equity, and limited cash-out refinances. There is no crash in sight because of the strength of the homeowner coupled with a very limited inventory of available homes to purchase today.
Los Angeles Real Estate : Reduce and Net Less