Is Housing Market Following Same Pattern as 2008 Crash?

Home price gains declined for the fourth straight month in October, underscoring housing affordability issues in the U.S. as the country contends with soaring inflation and elevated mortgage rates.

The S&P CoreLogic Case-Shiller National Home Price Index on Tuesday reported a 9.2 percent year-over-year increase in home prices for October. While this represents an annual uptick in costs, price gains decreased on a monthly basis from September's 10.7 percent.

The state of the housing market, and what lies in its future, has been the subject of many discussions in recent months.

Though some experts have predicted that the market will crash, others believe it is currently in the midst of a correction, the impacts of which have been described as less severe and far-reaching. Economists have previously told Newsweek that even if the market does crash, they do not think the downturn would be as bad as the 2008 crisis.

Still, following an announcement last week from the National Association of Realtors (NAR) that existing home sales in the U.S. declined for the tenth straight month in November, comparisons were drawn between the trajectory of the current market and the market in the lead-up to the last housing bubble.

"Following the same pattern as last housing bubble: Affordability collapses -> Sales plummet -> Prices decline...," Charlie Bilello, founder and CEO of Compound Capital Advisors, tweeted on December 21.

Housing affordability continued to fall on a national level in October, the NAR reported earlier this month, and the association reported a 35.4 percent year-over-year decrease in existing-home sales in November. But the scale of any price declines now is not projected to be nearly as dramatic as it was in 2008.

A CoreLogic report in 2018 said that prices fell 33 percent during the past recession. Redfin predicted in its 2023 Housing Outlook that the median U.S. home-sale price would drop by 4 percent to $368,000 in 2023.

Additionally, experts who spoke to Newsweek disagree with comparisons between the housing market's pattern back then and now, even if the trajectory may look similar at face value.

Dr. William Wheaton, a professor in the Massachusetts Institute of Technology's Department of Economics and former director of the MIT Center for Real Estate, told Newsweek that he doesn't believe the current situation is "anything like what happened in 2008."

"It's just not in the same league," he said.

Among the differences he cited was that there was a "serious problem" back then of "over-leveraging" borrowers. This is when a borrower has too much debt in comparison to equity in their property.

Kelly Mangold, a principal at RCLCO Real Estate Consulting, told Newsweek that it's hard to draw comparisons between the pattern of the current market and the market in the lead-up to the 2008 crisis because the underlying factors are very different.

At the time, people were getting foreclosed on because their homes lost value, but "lending standards have changed so much since then," Mangold said.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 to target financial system sectors that are believed to have caused the 2008 crisis, though Congress did pass another law in 2018 that rolled back some of the legislation's restrictions.

Mangold, noting a decrease in the prevalence of risky mortgage lending since the 2008 crisis, doesn't anticipate seeing the same situation of people's homes going underwater now.