Americans Unlikely to Lose Homes If Real Estate Bubble Bursts

• There is a growing imbalance of supply and demand in the real estate market.
• As home prices soar, many fear a repeat of the 2008 foreclosure crisis.
• But two economists told Insider it’s unlikely. Homeowners have a lot more financial power this time.

Housing affordability may be plummeting — but that doesn’t mean Americans are likely to lose their homes if the real estate bubble bursts.

Home prices have soared to new highs as buyers continue to duke it out for the limited amount of homes available for sale. As the imbalance widens, fears of a second foreclosure crisis, like the one in 2008, have flooded financial markets and the Twitterverse.

—Yolanda Taylor (@law4community) April 8, 2022

Odeta Kushi, the chief economist at First American, thinks that’s unlikely to happen for two reasons. Both have to do with the fact that homebuyers are in a far better financial position than they were in 2008.

“First, the housing market is in a much stronger position compared with a decade ago,” Kushi told Insider. “Accompanied by more rigorous lending standards, the household debt-to-income ratio is at a four-decade low and household equity near a three-decade high.”

The debt-to-income ratio is a common measure of financial health that compares the total amount of debt a person owes each month to their income. It is considered in mortgage applications.

Despite inflation surging to a 40-year high in February, Americans still have a tremendous amount of wealth. Collectively, households have gained about $2.5 trillion in excess savings during the pandemic and more than half of US states recorded their strongest-ever personal income growth in 2021. With the average mortgage borrower currently owning about $185,000 in tappable home equity —  the amount of money a homeowner can access while retaining at least 20% equity in their homes —  the Covid-19 housing market hardly resembles the housing bubble that gave rise to the 2008 foreclosure crisis. 

Holden Lewis, an analyst at NerdWallet, told Insider he agrees.

“When the housing market crashed in 2008 and 2009, it was because many people owed more than their houses were worth,” Lewis said. “So when they couldn’t afford to make their payments, they lacked the ability to sell their homes, pay off their mortgages, and start over. They ended up in foreclosure instead.”

That’s not going to happen this time, he says. According to Lewis, the real estate…