You may recall the housing crash of 2008, a pivotal event even if you weren't a homeowner at the time. If you're concerned about history repeating itself, there's reassuring news: the current housing market differs significantly from that of 2008.

A key distinction is the shortage of available homes for sale. Rather than an oversupply, as seen in 2008, we are currently facing an undersupply. For a market crash to occur, there would need to be an excess of homes for sale, but the data does not support this scenario.

Housing supply primarily originates from three sources:

1. Homeowners Deciding To Sell Their Houses: While housing supply has increased compared to last year, it remains relatively low. The current months' supply is below the norm. When comparing recent data (shown in green) to 2008 (shown in red), it's evident that today's available inventory is only about a third of what was available in 2008. In essence, there aren't enough homes on the market to cause a drop in home values. To replicate the conditions of 2008, there would need to be a significant increase in home sellers and a dearth of buyers, which is not the case currently.

2. Newly Built Homes: The number of newly constructed homes over the past 52 years reveals a 14-year period of underbuilding (shown in red), contributing significantly to today's low inventory. Builders have not been constructing enough homes for years, resulting in a substantial supply deficit. While the graph indicates a recent uptick in construction (the final blue bar), it's still on track to reach the long-term average and will not lead to an oversupply. Builders are intentionally avoiding overbuilding, unlike during the housing bubble.

3. Distressed Properties (Foreclosures and Short Sales): During the housing crisis, a surge in foreclosures was witnessed due to lax lending standards, allowing many individuals to secure home loans they could not genuinely afford. Presently, stricter lending standards have resulted in a higher number of qualified buyers and significantly fewer foreclosures. Data from the Federal Reserve demonstrates this positive shift, with the number of foreclosures declining as lending standards tightened. The forbearance program, implemented in 2020 and 2021, played a vital role in preventing a foreclosure wave reminiscent of 2008. This program gave homeowners options like loan deferrals and modifications, which were previously unavailable. Notably, approximately four out of every five homeowners exiting forbearance have either paid in full or established a repayment plan to avert foreclosure. These factors collectively mitigate the possibility of a wave of foreclosures entering the market.

What This Means for You: Housing inventory levels are far from the point where significant price drops and a housing market crash could occur. According to Bankrate, this situation is unlikely to change soon, especially considering the persistent strength of buyer demand. As Bankrate notes, "This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future."

Bottom Line: The current housing market's inventory shortage suggests there is no impending repeat of the 2008 housing crisis. The data and trends indicate that a market crash is not on the horizon.