Americans aren't likely to lose their homes if the real estate bubble bursts, 2 economists say

• 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.

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 market is in a far better position as banks and lenders have raised the standards for acquiring loans.

"In 2008, the saying was that if you could fog a mirror, you could get a mortgage," he said. "Lending standards were lax, and borrowers didn't even need to prove that they earned enough money to afford their monthly payments."

Lending standards are stricter now than they were in 2008. The US government has since enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act to help prevent some of the predatory lending practices that spurred the subprime mortgage crisis. No-money-down mortgages are almost unheard of and borrowers have to go through larger hoops to qualify for a mortgage.

All these factors combined with historically high home prices and robust homebuyer demand means American homeowners are sitting pretty.

"If buyers can't afford to pay their mortgages, they can sell their homes, pay off their mortgages in full, and avoid foreclosure," Lewis said. "There will be few foreclosures for the foreseeable future, and that means a housing crash is unlikely."