Why Recent Housing Market Concerns Shouldn't Lead To A 2008-Like Financial Crisis

For the past year or so, families looking to purchase a home have been dealing with a volatile housing market. Prices for homes have gone up all over the country, and it's been difficult for buyers to purchase property that meets all of their needs. According to Yahoo News, families across the U.S. are currently facing a combination of high inflation and home prices, increasing interest rates, and low inventory. This chaotic economic mixture can scare anyone into thinking they may be facing a situation similar to the 2008 financial crisis.

However, don't start panicking just yet, because experts are saying that our current situation is much different than 14 years ago, as reported by Fortune. There are certain policies that have been set in place since then to avoid a devastating economic collapse similar to that of 2008. We will break down what experts are saying in order to create a better understanding of current housing market trends.

Federal Reserve Chair Jerome Powell says he doesn't expect the 2022 housing correction to be as financially disastrous as the housing correction that began in 2006, per Fortune. A housing market correction occurs when home prices plummet 10% below their highest market value, according to Orchard. "From a financial stability standpoint, we didn't see in this cycle the kinds of poor underwriting credit that we saw before the Great Financial Crisis," Powell said. "Housing credit was much more carefully managed by the lenders. It's a very different situation [in 2022]."

Federal Reserve Board Governor Christopher Waller agreed and listed the different factors that indicate what makes our current housing market situation unlike that of 2008. "One is that because of relatively tight mortgage underwriting in the 2010s, the credit scores of mortgage borrowers today are generally higher than they were prior to that last housing correction," Waller noted. According to Bankrate, the average credit score for mortgage borrowers has reached as high as 768, a much different reality than the years between 2004-2006, when a score of 640 could get you approved for the lowest interest loans, per The Washington Post.