There are three certainties in life: death, taxes, and ever-rising home prices. The latter is less certain, of course, because there have been moments in American history when prices have fallen, but they are rare. So much so that you can only pinpoint two recent eras when home prices have fallen: the short-lived recession of the early 1990s and the Great Financial Crisis of the 2000s. Frankly, this is unusual for anyone who owns a home and tragic for anyone who doesn’t; think of the contrast between baby boomers and their millennial children.
From the 1970s through the 1980s, the baby boom generation coming of age and entering the housing world fueled the boom, so housing prices generally rose (as they did in 2008). Mortgage RatesThe economic slowdown began in 1990, but it was fairly mild; unemployment peaked in 1992 and housing prices actually began to rise again.
Then came the Great Financial Crisis, the big bad wolf. From late 1991 through what would become the early 2000s, we could see housing prices rise. The increase was slow at first, but by the early 2000s, home prices were soaring. In 2004 and 2005, values were up in double digits. But of course that all came to an end, because as housing became more unaffordable, lending went crazy. “There was no down payment and no lying loans,” “Poison Ivy” Zalman once told me. Zalman was one of the few analysts to describe the 2006 housing crash as it was developing and before it turned into a financial crisis.
Housing prices fell sharply and did not begin to truly recover until 2012. However, given the severity of the collapse, which saw several major lenders declare bankruptcy, Millions of homes have been foreclosed.You might have thought it would be worse.
“I estimate that the U.S. housing market has only had seven years of decline over the past 75 years,” says Ben Carlson, author of Common Sense Wealth, a popular blog on all things wealth and finance. I wrote recently “On why housing is everyone’s favorite investment. “Losses are only 9% of the time. And five of those seven years were after the housing bubble burst.”
More than a decade later, here we are. Housing prices Home prices have only risen since then—most dramatically during the pandemic. Interestingly, mortgage rates in this latest cycle have risen dramatically in a small echo of the 1980s, and home sales have fallen in a similar fashion to the financial crisis. But home prices haven’t really fallen. Last reading Data showed that house prices rose 5.4% in June from a year earlier, the highest level on record, although there are signs of a slowdown.
In any case, home prices don’t look like they’re going down anytime soon, even if they’re not rising as fast as they did during the pandemic. Housing policy analysts, urban economists, mainstream economists, and even some real estate executives will mostly tell you one reason: There aren’t enough homes. This country’s housing shortage didn’t happen suddenly. It’s the result of years of underbuilding and, in some places, decades of policy failures that have made it nearly impossible to build anything but single-family homes, thanks to zoning and land-use regulations controlled by local governments. All of this was happening before the pandemic housing boom, which only made matters worse and helped. Housing crises that had been largely confined to blue coastal states have spread.
But the sudden change in mortgage rates, triggered by the Fed’s battle to tame inflation, is what put the brakes on the housing market, at one point sending prices to their highest levels in two decades. Anyone holding a mortgage at 3% or so is selling only if they have to, further shrinking inventory. “Some of this is just an artifact of the 30-year mortgage, and it actually has the perverse effect of keeping home prices high,” Glenn Kelman, the chief executive of Redfin, once told me. He’s one of the executives who believes the only way out of this predicament is to build housing.
Fortunately, mortgage rates are down and inventory is up, so the situation is less bleak for anyone who doesn’t already own a home, but it’s still tragic. On the other hand, it looks good for homeowners who are watching their home values rise, though that doesn’t exactly make them rich unless they sell, at which point they may need another house to live in. Many don’t see home prices falling anytime soon, unless millions of homes miraculously appear. And while one presidential candidate has pledged to end the housing shortage, laying out a plan to build three million homes, it’s not entirely clear how she’ll do it, whether it will be enough, or whether she’ll get a chance to put her plan into action.
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