Why the Current Housing Market Differs from 2008: Supply Dynamics and Builder Numbers

 Why the Current Housing Market Differs from 2008: Supply Dynamics and Builder Numbers


Introduction:

The aftermath of the 2008 financial crisis and the subsequent housing market collapse left a lasting impact on the global economy. However, drawing parallels between the current housing market and the events 2008 may not be accurate. This blog delves into the key differences between the two periods, highlighting why the housing market is unlikely to experience a similar crash during the subsequent deep recession.


Supply Dynamics: Oversupply vs. Under Supply

One of the most significant distinctions between the two periods lies in the supply dynamics of the housing market. In 2008, the housing market was plagued by an oversupply of homes due to rampant speculative building and lending practices. This oversupply led to a sharp decline in housing prices as demand waned and inventory flooded the market. 


Fast forward to the present, and we find a housing market characterized by a persistent undersupply of homes. Strict lending standards, labor shortages, and regulatory hurdles have limited the construction of new homes. As a result, demand has outstripped supply, leading to rising home prices. This fundamental difference suggests that the market is less susceptible to a sudden price collapse due to an overabundance of inventory.


Impact of Recession on Housing:

During the 2008 recession, the housing market's collapse played a central role in exacerbating the crisis. Mortgage-backed securities tied to subprime loans went sour, leading to a chain reaction of financial failures. While the potential for economic downturn remains this time, the housing market is better insulated. With a housing shortage, demand is expected to persist even during a recession, providing a buffer against a dramatic price plummet.


Builder Numbers: A Closer Look at Utah

To understand the evolution of builder numbers, let's compare the situation in 2008 to 2021 in Utah. In 2008, Utah, like many other places, experienced a proliferation of home builders. The housing boom and easy access to credit attracted numerous players to the market. However, after the 2008 crash, the industry underwent a significant contraction, leading to the closure of many small-scale builders.


As of 2021, the number of home builders in Utah has yet to return to the pre-2008 levels. The market's cautious recovery, combined with tighter lending standards and regulatory changes, has restrained the resurgence of many builders. This situation further underscores the dissimilarity between the two periods and reinforces that the housing market's landscape has shifted.


Conclusion:

While the 2008 housing market crash left a lasting imprint on our collective memory, the current housing market operates under different conditions. The undersupply of homes, contrasting the oversupply of 2008, along with changes in lending practices and builder numbers, sets the stage for a more resilient housing market during the subsequent deep recession. However, it's important to remember that all needs are subject to change, and unexpected variables can come into play.

Location: Vineyard, UT 84059, USA

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