The 'Critical Difference' Between Housing Market Now and 2008 Crash: Expert

While some falling housing prices and home sales have spurred talk of a potential housing market crash in the U.S., two experts highlighted what they said was a "critical difference" between the market now and in the mid-2000s.

When the housing market crashed in 2008, closer to the end of that decade, it led to an economic crisis that became known as the Great Recession. A "critical difference" between the mid-2000s housing market before the 2008 crash and now is that "there just isn't enough housing supply today," Philipp Carlsson-Szlezak and Paul Swartz wrote in a piece published by Fortune on Tuesday.

Carlsson-Szlezak is Boston Consulting Group's global chief economist and managing director and partner at the firm's New York office. Swartz is a senior economist and director at the Boston Consulting Group Henderson Institute.

Consumer confidence in the U.S. housing market has dropped to its lowest level since 2011, according to findings from the Fannie Mae Home Purchase Sentiment Index (HPSI) released Monday. The government-sponsored organization said that the survey results show that consumers have grown increasingly pessimistic about buying and selling conditions in the U.S. market.

"The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability," Fannie Mae Senior Vice President and Chief Economist Doug Duncan said in a statement. "Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it's a bad time to buy, as well as sell, a home."

"Overall, this month's HPSI results appear to confirm our forecast for moderating home sales over the coming year," he added.

Current U.S. housing market differences 2008 crash
While some falling housing prices and home sales have spurred talk of a potential housing market crash in the U.S., two experts highlighted what they said was a "critical difference" between the market now and in the mid-2000s. Above, a "for sale by owner" sign is posted in front of property in Monterey Park, California, on April 29, 2020. Frederic J. BROWN / AFP/Getty Images

Housing supply in the U.S. plays an important part in whether the market will crash.

A housing bubble usually begins with a boost in housing demand that coincides with limited inventory, which can cause housing prices to spike, according to financial website Investopedia. Such an increase in demand occurred during the COVID-19 pandemic.

According to the U.S. Census Bureau, the market came to a "screeching halt" during the initial March 2020 shutdown but rebounded that summer. While inventory improved that summer, it failed to keep up with sales growth. Additionally, Zillow research data showed that there were fewer homes for sale in 2020 than in 2019, creating "hyper-competitive conditions" in the home buying market, the bureau explained.

A housing bubble can burst when demand falls or stagnates even while supply increases because of the earlier jump in demand, according to Investopedia. This can cause a sharp decrease in home prices when the new supply of homes lacks buyers willing or able to pay the higher costs.

But Carlsson-Szlezak and Swartz noted that there still isn't enough housing supply in the U.S.

"Today's low housing inventories are consistent with continued building activity even against a backdrop of higher rates, because the risk of being unable to sell homes when there are few on the market is lower," they wrote.

A Freddie Mac report released in 2021 found that the housing supply deficit increased by about 52 percent between 2018 and 2020, with a 3.8 million deficit as of the fourth quarter of 2020.

Additionally, a recent Up For Growth analysis found that more than half of metropolitan regions in the U.S. had an undersupply of homes in 2019 even before the pandemic, CBS reported.

In comparison, a graph from the Federal Reserve Bank of St. Louis showed that housing supply shot up sharply from 2005 to 2008.

Even if the housing market were to crash, experts have cast doubt on whether it would match the severity of the 2008 downturn.