how did the housing market get so inflated, and is it different from what happened in 2008?
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In 2008, demand for mortgage backed securities (think 1000’s of mortgages bundled so that it acts like a bond, earning interest payments) that banks were giving mortgages out to basically anybody. They would even gives ones without verification of assets or income (in return for a higher interest rate). And with mimimal down payments. So lots of people who had no business buying a house, or buying such an expensive one, did so. Many believed they could simply hang on and sell for a profit before the home was foreclosed on. For a time, that worked. Them market peaked and it didn’t work. Homes went into foreclosure, glut of empty homes causes prices to fall, people underwater didn’t want to pay more for a house than it was worth and just turned in keys to their lender, it created a downward spiral of homes flooding the market. Additionally, because of the games Wall St. was playing, the mortgage backed securities began failing and triggered payouts on other investments that brought liquidity to a halt. Without money to lend out, those empty homes couldn’t be sold to buyers needing mortgages. Further price drops…
This time, it’s simply higher demand than there is supply. Due to COVID, buyers moved up plans to buy or upgrade because they needed/wanted more space. But older homeowners didn’t want to sell because they didn’t want strangers in their home, didn’t want to travel to FL or AZ, have adult kids move back home.
Additionally, low interest rates gave people more buying power — a $450k loan at 3% is same monthly payment as $350k loan at 5%.
And there are long term lag in housing built coming out of 2008, which is a bigger issue as large, younger generations hit home buying age.
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