Housing Market “Rhymes” Wild 1980s Market

Today’s housing market proves that history does, in fact, recycle its best hits. But it’s not 2008 getting a re-do.

That’s according to First American Financial’s Chief Economist Mark Fleming, who notes that the market of today is closer to that of the 1980s– not an exact comparison, but close enough to glean insights.

“Today’s housing market isn’t anything like the housing market of the mid-2000s – the housing market today is not overbuilt, nor is it driven by loose lending standards, sub-prime mortgages, or homeowners who are highly leveraged,” he said.

“However, the current housing market is similar to the market of the 1980s. History doesn’t repeat itself, but it often rhymes.”

First American’s Potential Home Sales Model slipped 0.3% in September, though it rose 0.3% YOY.

This is still more than 50% above the market potential low point reached in February 1993. But affordability remains at rock bottom, and both buyers and sellers are fleeing as rates approach 8%.

Existing home sales are soon expected to fall under 4 million for the first time since 2010 when the throws of the financial crisis dragged the market underwater.

The main players in this drama are millennials struggling to find an affordable first home.

“In the late 1970s and early 1980s, baby boomers were aging into their prime home-buying years, providing a wave of demographic demand,” Fleming said. 

“Since millennials are ‘an echo’ of the baby boomers and are currently aging into their prime home-buying years, the demographic picture in the early ‘80s mirrors today’s housing market.”

Inflation and rates also skyrocketed in that time period, with rates reaching a peak of 18% in 1981. Existing home sales tanked and home prices surged, much like the last few years.

So what can analysts take away from this data? 

“The housing market did rebound from the 1980s, but it took some time. Inflation and mortgage rate stabilization were key,” said Fleming. 

“However, industry forecasts predict that mortgage rates will moderate if the Federal Reserve stops further monetary tightening and provides investors with more certainty. Mortgage rate stability, even if the stabilization occurs with rates at a higher level, is the key to an eventual housing recovery.”