Experts Say Cooling US Housing Market Isn’t in Same Neighborhood as 2008 Price Plunge

A "For Sale" sign is posted in front of property in Monterey Park, Calif.. Frederic J. Brown/AFP via Getty Images

It’s one of those moments that lead many Americans to grit their teeth whenever it’s mentioned: the 2008 housing market crash.

Few events in recent decades have instilled homeowners with more dread than the notorious housing bubble burst that year.

A combination of cavalier lending policies and high market inventory stemming from the subprime mortgage blowback preceded a sudden drop in demand. Thus, an economic sinkhole was born.

Thousands of owners saw their home values plummet. Following the historic market collapse was the worst economic downturn the United States has endured since the Great Depression in the 1930s.

Presently, comparisons between a cooling trend in the current U.S. housing market and the conditions leading up to the 2008 collapse have triggered red-flag warnings from some economists.

One analysis revealed that housing demand is tanking fast in the midst of a new home construction boom that will soon flood the market.

The number of privately owned homes currently being built is more than 1.7 million.

New homes under construction at a housing development in Novato, Calif., on March 23, 2022. Justin Sullivan/Getty Images

Even the hottest real estate markets have felt the sting of plunging demand. This includes cities like Seattle, Phoenix, Boston, San Francisco, Denver, and Dallas.

In fact, U.S. home prices are now experiencing the worst free fall since the 2008 crash. Talk of an economic recession looms large, but many real estate insiders say it won’t be anything like what happened during the Great Recession.

It'll be different, but the housing market could still be in for a rough ride in 2023.

Interest Rate Factor

“This time around, there are a number of factors that could make the outcome better or worse,” Boyd Rudy told The Epoch Times.

An associate broker at Dwellings Michigan, Rudy says both the economy and interest rates play a critical role in how the current housing slump will play out.

He noted that despite current inflation, the U.S. economy is still “relatively strong,” and interest rates are still “relatively low,” which could cushion the blow of another market collapse.

“However, if interest rates rise significantly, this could exacerbate the problem,” Rudy said.

When it comes to home purchases, mortgage rates heavily influence demand. This year, they topped out at more than 7 percent in October and dropped to 6.61 percent as of Nov. 17 for an average 30-year fixed rate.

The Federal Reserve’s interest hike this year was an attempt to curb exploding price inflation.

Another report stated home prices were overvalued by up to 75 percent in some markets back in May. Consequently, demand for new mortgages has been falling fast as the new construction boom is beginning to catch up.

Though despite tanking demand, some industry experts say a 2008-style housing bust isn’t likely.

“I don’t think we will see a housing crash comparable to 2008. However, I do believe housing prices will continue to decline over time if interest rates stay at their current levels,” real estate developer and broker Bill Samuel told The Epoch Times.

Samuel runs Blue Ladder Development and has worked in the Chicago area since 2013. Despite similarities, he says there’s an important difference between the previous and existing housing bubbles.

“In 2008, there was a huge amount of bad loans being produced that created a massive wave of foreclosures ... the ultimate driver of a housing crash. In 2022, we are still near historical lows for foreclosure,” he explained.

A foreclosure sign is posted in front of a home for sale in Stockton, Calif. on April 29, 2008. Justin Sullivan/Getty Images

Carl Fanaro, the president of 3F Properties of Louisiana, agreed.

“The fundamental difference between the two is that the crash of 2008 was from faulty loan products. This led to a massive wave of foreclosures and left many people searching for housing that could not qualify for purchases,” he told The Epoch Times.

Though there’s no denying that, in spite of the differences, demand for homes has dropped sharply across the board this year.

Knoxville area realtor Jean Chung said she has also noticed a curb in demand. “I’m finally having quiet weekends, it’s been years. The exodus to Tennessee has slowed down,” she told The Epoch Times.

She noted that while the United States may be heading for another recession, she’s optimistic that things won’t be as bad as the last market bust.

“My very trusted loan officer said the ones [loans] she couldn’t approve were the ones who got in trouble by obtaining risky loans in the 2008 crisis.”

Supply And Demand

The current housing bubble developed after two years of a pandemic boom. By comparison, low interest rates and easy lending policies drove the 2008 crisis.

After months of lockdowns and economic spiraling in 2020, waves of people began moving away from cities and states with higher home and rental prices. This created excessive demand in some markets practically overnight.

This was further compounded by a shortage of new construction nationwide, which continued to lag behind demand due to supply chain issues.

Construction is finally catching up and the timing couldn’t be worse.

As of July, home sales fell by 20 percent year over year. By the end of September, new mortgage applications for a 30-year fixed rate fell to their lowest point in 25 years.

Concurrently, the U.S. has a 10.4 month supply of new houses. That represents the highest level since 2009. So the takeaway is there are now more homes being built than there are perspective owners to purchase them.

And this time, it may be home builders that get stuck with excess inventory instead of the banks.

Fanaro said, “New construction will come to almost a screeching halt as the developers are now the ones underwater. Many spec builders that reaped great rewards the last five years are [now] stuck with inventory.”

Samuel predicted 2023 home values would likely be down 5-15 percent. He further added the year over year listings under contract in his area are down around 66 percent.

“If this trend continues, it may be an early indication the market is shifting from a seller’s market to a buyer’s market.”

Though for some, it’s too early to tell if the differences between the current and 2008 housing slumps will be enough to guarantee a better outcome.

“While there are more regulations in place than there were during the last housing market crash, it’s unclear whether these regulations will be enough to prevent another crisis,” Rudy said.