3 Graphs To Show That This Isn't A Housing Bubble

With all of the headlines and buzz in the media, some consumers believe the market is in a housing bubble.

As the market shifts, you may be wondering what'll happen next. It's only natural for concerns to creep in that it could be a repeat of what took place in 2008.

The good news is there's concrete data to show why this is nothing like the last time. First, there is a shortage of homes on the market today, not a surplus. The supply of inventory needed to sustain a normal real estate market is approximately 6 months. Anything more than that is an overabundance that can cause prices to go down. Anything less than that is a shortage and will lead to continued price appreciation.

After the housing market crashed in 2008, there were too many homes for sale. Many of which were short sales and foreclosures and that caused prices to tumble.Today, supply is growing slightly but there's still a huge shortage of inventory available. Check out this graph from the National Association of Realtors to show how this time compares to the crash. Today, unsold inventory sits at about 3 months supply at the current sales pace.

One of the reasons inventory is still low is because of sustained under building. When you couple that with the ongoing buyer demand. As millennials age into their peak homebuyer years, it continues to put upward pressure on home prices. That limited supply compared to buyer demand is why experts forecast home prices won’t fall this time.

Number two, mortgage standards were much more relaxed during the crash. During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. This graph showcases data on the Mortgage Credit Availability Index from the Mortgage Bankers Association The higher the number, the easier it is to get a mortgage.

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a loan or to refinance their current home. Back then, lending institutions took on much greater risk in both the person and the mortgage products that were offered. That led to mass defaults, foreclosures, and falling prices.

Today, things are different and purchasers face much higher standards for mortgage companies. Stricter standards like there are today help prevent the risk of a crash of the wave of foreclosures like there was last time.

Number three, foreclosure volume is nothing like it was during the crash. The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst in 2008. Foreclosure activity has been on the way down since the crash, because buyers today are more qualified and less likely to default on their loans. Check out this graph.

In addition, homeowners are equity rich not tapped out. In the run up to the housing bubble, some homeowners were using their homes as personal atm's many immediately withdraw their equity once it built up.

When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on the mortgage was greater than the value of the home. Some of those households decided to just walk away from their homes which made the short sale and foreclosures crisis worse because they would lower the value of the other homes in the area.

Today, prices have risen nicely over the last few years and that’s given homeowners an equity boost. Mortgage holders have on average $207,000 in equity available per borrower. Because of this, homeowners are in a completely different position this time.

Bottomline, if you're worried about making the same mistakes that led to the housing crash, these graphs should alleviate your concerns. Concrete data and expert insights clearly show why this is nothing like the last time.