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Fortune
Fortune
Alena Botros, Sydney Lake

The brutal 2023 housing market was just like the 1980s—except with a little bit of Global Financial Crisis thrown in

Housing market (Credit: Photo illustration by Fortune; original photo by Getty Images)

Mark Twain is famous for the (likely apocryphal) quote that history doesn’t repeat itself, but it often rhymes. When current affairs are seemingly unbearable and make no sense, people find solace in events of the past. And it is human nature to draw comparisons to the past as a way to understand the present, Mark Fleming, chief economist with Fortune 500 financial corporation First American, previously told Fortune. So how do you make sense of a housing market that looks frozen, with little sales activity, albeit with some movement on prices nationwide? 

In most ways, as Fleming and others have noted, last year’s housing market rhymes with one of the worst times in the modern era for real estate: the 1980s, when baby boomers entered homebuying age and weathered a nasty recession, high inflation, and sky-high mortgage rates. But as luck wouldn’t have it, there’s a little bit of that other famously bad housing market thrown in, too, as existing home sales have retreated to their slowest pace in more than a decade, recalling 2010 and the slow, decade-long recovery from the Global Financial Crisis.

In other words, housing is in a uniquely rough spot as 2024 begins. Here’s how the pieces fit together (or don’t), and why there is still some room for optimism about the new year. 

The Powell hikes rhyme with the ’80s Volcker shock

One of the biggest barriers to entering the housing market last year was the occurrence of mortgage rates higher than they’d been in decades, peaking at 8% in October. Monthly mortgage payments jumped so high that being house poor became the new norm, and some buyers were even spending more than half of their paychecks on housing alone. 

Spare a thought for the boomers, though, because mortgage rates were much higher 40 years ago, peaking at about 18% in the 1980s. Behind both surges in mortgage borrowing is the crucial but wonky explanation of monetary policy: both eras saw high inflation, huge hikes in interest rates from the Federal Reserve, and a housing industry taking it on the chin.

The ’80s were a famous time in monetary policy, as Fed Chair Paul Volcker assumed office amid “The Great Inflation” in 1979, saw inflation peak in 1980 at more than 14%, then became a major historic figure for raising interest rates to previously unthinkable new highs. This caused mortgage rates to rise and home affordability and sales to plummet in the early ’80s, while also bringing about a nasty but short recession and setting the stage for “The Great Moderation” (lasting until the Global Financial Crisis). Progressive economic historians attribute this “Volcker shock” to a shifting economic paradigm that destabilized the labor movement and increased inequality for decades.

Current Fed Chair Jerome Powell has drawn comparisons to Volcker for his past two years of inflation fighting, as the Fed rapidly increased interest rates to combat inflation after it hit a four-decade high of more than 9% in June 2022. Mortgage rates skyrocketed, and are still more than double pandemic lows, despite the fact that inflation has cooled. 

First American’s Fleming equates 2023’s 8% mortgage rates with the 18% rates of the 1980s because, between the 1970s and ’80s, mortgage rates rose by about eight to 10 percentage points, a change relatively similar to the rise in mortgage rates seen during the past two years. Mortgage rates started falling toward the end of 2023, and the current 30-year fixed rate mortgage is 6.74%, according to Mortgage News Daily. That’s still a stark difference, however, from the sub-3% rates of the pandemic housing era.

“Our response is less to whether it’s 8% or 18%, but how much and how quickly has it changed,” Fleming previously told Fortune, adding that people remember rates of 3% or 3.5%. “That’s what drives the behavior.”

High mortgage rates have spelled bad news for buyers vying to break into the market, making the homebuying process nearly impossible—especially for young and first-time buyers struggling to come up with cash for a down payment. 

The years following the Global Financial Crisis 

Throughout the duration, and in the aftermath, of the Global Financial Crisis, home prices fell across the country, as the housing market crashed following the collapse of subprime mortgages. While last year’s market didn’t see home prices fall nationwide (although certain “Zoom towns” such as Boise and Austin saw huge corrections), it did see a slowdown in sales activity comparable to the years that followed the GFC.   

Last year, existing home sales fell to their lowest level since 2010, as tracked by the National Association of Realtors, when the housing market was reeling from the financial crisis. Ivy Zelman, a financial analyst dubbed “Poison Ivy” for accurately predicting the 2008 housing bust, noted the similarity recently, saying: “Existing home sales are right now probably at the lowest since the GFC.” And it’s true that last September, existing home sales fell 15% on an annual basis to a seasonally adjusted annual rate of 3.96 million transactions, activity unseen in the housing market since the 2010 doldrums. (The typical rate is 4 million or above.)

“As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” NAR chief economist Lawrence Yun said in an October 2023 statement. Consequently, mortgage applications dropped severely both following the 2008 financial crisis and in 2023, according to the Mortgage Bankers Association’s Purchase Index. Mortgage applications dropped following an era of loose lending standards with their consequences revealed, and then again in 2023 when mortgage rates more than doubled that of pandemic-era rates. 

The fundamentals of the current market aren’t aligned with that of the Great Financial Crisis, nor are the underlying causes of depressed sales activity in either cycle, as Yun said. Existing home sales have slowed, but home prices haven’t fallen at the same pace or to the same level as in the 2008 crash and years that followed. Not to mention, this housing cycle’s mortgage delinquencies and foreclosure rates are far from what occurred in the prior downturn. 

So then we have a strange beast: a market that looks like a repeat of the 1980s, with a little bit of GFC thrown in, but with a far different macroeconomic landscape. The 1980s and 2010s saw nasty recessions, but the sleepy current state of the housing market is occurring against an overall economy that appears headed for a rare soft landing

Present day

While last year’s housing market was painful for those who didn’t own their homes outright, hadn’t locked in a low mortgage rate, or bought before home prices skyrocketed, there have been slight improvements in affordability.

For one, mortgage rates have fallen back to the 6% range and could continue to drop in light of the Federal Reserve’s decision in late 2023 to leave interest rates unchanged, with even a cut possible this year. And some forecasts are predicting that home prices will fall this year, after rising more than 40% during the pandemic housing boom. These are ’80s-style slim pickings, though.

As Redfin’s chief economist recently put it: “Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless.”

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