First Data: The Great Compression vs U.S. Home Prices

Home buyers shouldn't expect this year's housing market to lose 20 percent of its value as it did in 2008. This year's recession is different.

April 15, 2020 by Dan Green

The Housing Headline

Despite a recession, U.S. home values are expected to rise this year.

The News Behind The Housing Headline

According to financial services company Black Knight, the U.S. housing market is well-positioned to hold up against recession this year.

The findings come from Black Knight’s Mortgage Monitor, the group’s monthly analysis of national mortgage and housing data. The most recent Mortgage Monitor suggests U.S. home values won’t drop during this year’s Great Compression as they did between 2008-2010.

Black Knight highlights two critical differences between the market of today and 2008.

The first: today’s would-be home sellers are delaying their home sales. New listings fell 15 percent through the end of March 2020, offsetting a similar drop in demand from today’s buyers.

The second difference is that, in 2020, homeowners are better-positioned to withstand an economic downturn.

As compared to 2008, homeowners have more equity, more disposable income, and better credit scores – and that leads to fewer foreclosures.

  • Less than half of today’s homeowners have less than 10% equity
  • Today’s average payments require 1/3 less of a household’s income
  • Credit scores today are 30 points higher, on average

Additionally, as compared to 2008, there are 60 percent fewer sub-prime mortgages in circulation; and fifteen times fewer adjustable-rate mortgages are getting ready to reset.

Why This Housing News Matters To You

Don’t expect this year’s housing market to lose 20 percent of its value – like it did in 2008. This recession this year is different, and the housing market’s reaction will be different, too.

Remember that The Great Recession started in housing.

Home values started to decline in 2006. Within eighteen months, foreclosure activity doubled, and credit markets tightened. By 2008, financial markets were on the precipice, and the economy needed massive government intervention and three full years to recover.

This year’s recession is different.

Housing isn’t weak, credit isn’t loose, and consumers aren’t over-extended. Plus, more than 90% of today’s homeowners have long-term, fixed-rate mortgages, which means nothing is forcing them to refinance or sell their homes because of rising payments.

It’s been more than a month since the start of COVID-19 restrictions, and home values are holding up nationwide, according to real estate data company Altos Research.

Since mid-March, the median U.S. home price hasn’t changed.

So, if you’re buying a home this year, don’t expect to swoop in to get “a deal.” The fundamentals are still in place – home buyers outnumber home sellers, and that helps keep prices high.

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