Ep. 170 - The $17 Trillion Reason Why 2024’s Housing Market is NOTHING like 2008

Jun 12, 2024

In the midst of a volatile economic landscape, it's easy to get caught up in media headlines predicting a housing market crash reminiscent of 2008. However, a closer look at the current state of the US housing market reveals a strikingly different picture. One of the most compelling reasons for this difference is the astounding $17 trillion in home equity currently held by American households.


This significant equity position not only provides a robust buffer against market volatility but also highlights the underlying strength of the housing market. In this blog post, we'll explore the implications of this equity, the factors shaping the current housing market, and why 2024 is shaping up to be a far cry from the conditions that led to the 2008 crash.


The Power of Home Equity

The average American household now holds an impressive $182,000 in home equity, a figure that speaks volumes about the financial stability of homeowners today. This equity serves as a vital safety net, enabling homeowners to weather economic challenges and providing a source of wealth that can be tapped into when needed.


However, accessing this equity is not as straightforward as it may seem. Homeowners have limited options, such as selling their homes or obtaining a loan through a cash-out refinance or home equity line of credit (HELOC). Despite these limitations, the sheer magnitude of the available equity is a testament to the robustness of the current housing market.


The Fed's Balancing Act

The Federal Reserve finds itself in a delicate balancing act, attempting to control inflation while maintaining housing affordability. The Fed's tightening policies, designed to curb inflation, have had an unexpected impact on the housing market. By making the money supply more expensive, these policies have inadvertently led to a decrease in new housing construction as builders grapple with profitability concerns and the risk of unsold inventory.


This reduction in housing supply, coupled with high-interest rates, has left many potential homebuyers frustrated. Sellers, on the other hand, are reluctant to part with their properties unless they receive a premium price, as they benefit from the locked-in low mortgage rates secured in previous years. This dynamic has created a unique market environment where prices remain elevated due to limited inventory, despite the challenges faced by buyers.


The Importance of Job Reports

As the Federal Reserve navigates this complex landscape, job reports have emerged as a crucial factor in their decision-making process. The Fed closely monitors employment data, as a weakening job market could prompt them to adopt a more accommodative stance. Recent job reports have shown mixed signals, with the unemployment rate ticking upward and significant job losses in the household survey, contrasting with the headline job creation numbers.


These nuanced employment trends will play a pivotal role in shaping the Fed's future actions. While a rate cut seems increasingly likely given the improving inflation data, the timing and magnitude of such a move will largely depend on the stability of the job market. As we approach the end of the year, the Fed will carefully weigh these factors to ensure a balanced approach that supports economic growth without jeopardizing the housing market's recovery.


The Bottom Line

In conclusion, the US housing market in 2024 stands on a solid foundation, bolstered by the unprecedented $17 trillion in home equity. This equity position, along with the unique dynamics created by the Fed's policies and the evolving job market, sets the stage for a housing market that is fundamentally different from the one that crumbled in 2008. As we navigate the coming months, it's crucial to look beyond sensational headlines and focus on the underlying strength and resilience of the American housing market. While challenges remain, the current equity buffer and the anticipated shifts in the market over the next six months paint a picture of a housing market that is well-positioned to weather the storm and emerge stronger on the other side.