If you are considering a home or condo purchase in Northern VA, you will remember the housing crash that took place back in 2008. Todays news continue to report about the economic slowdown may bring all those concerns back to the surface. While those feelings are understandable, data can help reassure you the situation today is absolutely nothing like it was in 2008, especially in the DMV.

One of the key reasons why the Northern VA market is not a bubble and won’t crash is the current undersupply of inventory. The housing supply comes from three places:

• Current homeowners selling

• Newly built homes selling

• Distressed properties like short sales or foreclosures

A key ingredient for the Northern VA market to crash would be an oversupply of listed inventory for sale, and the numbers just don’t support that. So let’s look at where inventory is coming from today to help prove why the housing market isn’t headed for a crash.

Current Owners Listing Their Homes Up for Sale

There is no doubt the housing supply in Northern VA is increasing this year, but keep in mind there’s still a limited number of existing homes available. The supply of homes got so low, inventory had to rise at some point. The graph below helps illustrate. Based on the latest weekly data, inventory is up 27.8% compared to the same week last year (shown in J Group Teal). But compared to the same week in 2019 (shown in the larger red bar), it’s still down by 42.6%.

So, what does this mean? Listing Inventory in NOVA is still historically low.

There aren’t enough homes on the market to cause prices to crash. There would need to be a flood of people selling their houses or condos in order to tip the scales toward a buyers’ market. And that level of new listing activity simply does not exist.

New Construction Coming onto the Market

There’s also a lot of reports on the news about what’s happening with newly built homes, and that may make you wonder if we’re overbuilding. But home builders are actually slowing down their production right now. Ali Wolf, Chief Economist at Zonda, notes:

“It has become a very competitive market for builders where they are trying to offload any standing inventory.”

To avoid the overbuilding that happened leading up to the housing crisis, builders are reacting to higher mortgage rates and softening buyer demand by slowing down their work. That is partially to do with the difficulty in available land/lots and supply chain issues. It’s also a sign they’re being intentional about not overbuilding homes like they did during the bubble.

According to the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes this year. While this will add more inventory to the market, it’s not on pace to create an oversupply as the market is dramatically undersupplied at this point.

Short Sales or Foreclosures

The last place home inventory can come from is distressed properties which includes short sales and foreclosures. In 2008 there was a flood of foreclosures due to lending standards that allowed many people to get a home loan they couldn’t afford. Today, lending standards are much tighter, resulting in more qualified buyers and much fewer foreclosures. The graph below uses data from ATTOM Data Solutions on properties with foreclosure filings to help show how much things have changed since the crash:

Leading up to the housing crash there were over one million foreclosure filings per year. As lending standards tightened the foreclosure activity started to decline. And in 2020 and 2021, the forbearance program was a further aid to help prevent a repeat of the wave of foreclosures we saw back around 2008.

That program was a game changer, giving homeowners options for things like loan deferrals and modifications they didn’t have before. And data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. These are a few of the biggest reasons there won’t be a wave of foreclosures coming to the market.

Bottom Line

Even with housing supply growing this year, the market is not anywhere near the inventory levels that would cause prices to drop significantly. That’s why Northern VA inventory tells us the housing market won’t crash.