Bigger Pockets: Crash or Correction: Are We Repeating 2008’s Mistakes?

During any market turmoil, history can provide some guidance. While specific market conditions will vary compared to the past, understanding how similar events played out or could have played out differently can be crucial.

Given how quickly markets sold off and recovered from the pandemic, investors are still looking closely at the 2008 market meltdown. That was fueled by real estate’s collapse, as easy lending standards build up a housing bubble.

Today’s housing market is significantly different. Lenders went back to requiring sizeable down payments, and underwriting standards remained high. Home equity is also at a record high today as well.

Yet many see a potential for a housing crash once again.

That’s easy to see why, given rising interest and mortgage rates. Rates are back to 2008 levels, and homeowners now have to shell out 6 percent for a mortgage. That’s a high enough cost to keep some out of the housing market for now.

That could lower demand, which in turn would lower home prices, potentially causing a decline in housing. However, with an overall shortage in housing right now, the extent of a housing market drop should be nowhere near 2008 levels.

More importantly, the 2008 drop led to a wave of foreclosures. With so much home equity around today, lower home prices may simply mean less equity for today’s homeowners, not a major crash.

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