Monday, February 02, 2009

The Real Estate Crash of the 1980s

In a previous post, I wrote about how the housing market crashed in the early 1980s under the crushing weight of the 17-18% mortgage rates, and about we seem to have forgotten how bad the real estate market suffered during that period. We hear a lot though about the "worst economy since the Great Depression©," but nothing about the "worst real estate market since the 1980s."

The graph above tells the story of how bad it really was back then. From the peak of 4 million existing-home sales in 1978, there was -50% drop in home sales over the next four years, so that by 1982 only 2 million homes were sold (data here, Table 7). It took almost two decades, or until 1996, before home sales exceeded the 1978 level of 4 million units.

So before we compare today's economic conditions to the Great Depression, we might want to stop off in the 1980s before we go all the way back to the 1930s.


At 2/02/2009 1:49 AM, Blogger wcw said...

Here is the OFHEO USA house price index.

Finding the Real Estate Crash of the 1980s is left as an exercise for the reader.

At 2/02/2009 6:32 AM, Anonymous Anonymous said...

Stop off in the 1980s. That was 2007 news. The early 1990s were even worse. That was 2008 news.

Nominal house prices did not fall in the 1980s although real prices declined 10-15% over a 4 year period and did not recover the prior peak until 1986.

Another pretty price chart with the caveat that the Q4.08 data has not been charted yet.

At 2/02/2009 7:12 AM, Anonymous Anonymous said...

...Of course the national savings rate was upward of 10%, which allowed for the rebound in home sales during the mid 1980s. Perhaps you could also include these savings data in your analysis, or better yet, perhaps you can include a backdrop histogram of household debt to income with your comparison of the early 1980s housing market with the current market... That is something I'd like to see.

At 2/02/2009 8:28 AM, Anonymous Anonymous said...

This RE crash is a result of a credit implosion - much worse than the restrictive credit-caused crash of the early eighties. Rates cannot go any lower/ lending cannot get any "looser." True, it is not yet as bad as then, but this only the second year of a multi-year debt unwinding. Buckle up.

At 2/02/2009 10:08 AM, Blogger 1 said...

"Here is the OFHEO USA house price index"...

Interestingly enough some people had no faith in what OFHEO had to say...

At 2/02/2009 9:38 PM, Anonymous Dr. T said...

You keep bringing up these topics, but for reporters and most people, economic news memory only goes back to 2001. Prior to 2001, everything is muddled, and all bad economic factors were somehow related to the depression (which my father-in-law now attributes to the debts we incurred in WW 1).

In many topics, the media (and average citizens) display a shocking lack of longterm memory by forgetting events that occurred less than three years before. I gave up trying to educate people about recent history: they just don't care enough to learn about what the media aren't telling them.

At 2/03/2009 10:03 AM, Blogger wcw said...

1, you addlepated lackwit, the OFHEO HPI is the gold standard of house-price indexes. Its single failing, including only conforming loans, had no effect in the early 1980s.

Criminy, I hate people who can't face facts.


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