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Housing: Don’t Compare the Current Housing Boom to the Bubble and Bust

by Calculated Risk on 3/31/2022 04:39:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Housing: Don’t Compare the Current Housing Boom to the Bubble and Bust


It is natural to compare the current housing boom to the mid-00s housing bubble. The bubble and subsequent bust are part of our collective memories. And graphs of nominal house prices and price-to-rent ratios look eerily similar to the housing bubble.

However, there are significant differences. First, lending has been reasonably solid during the current boom, whereas in the mid-00s, underwriting standards were almost non-existent (“fog a mirror, get a loan”). And demographics are much more favorable today than in the mid-00s.

A much more similar period to today is the late ’70s and early ’80s. House prices were increasing sharply. Demographics were very favorable for homebuying as the baby boomers moved into the first-time homebuying age group (similar to the millennials now). And inflation picked up from an already elevated level due to the second oil embargo in 1979, followed by the Iran-Iraq war in 1980, driving up costs.

In 1979, the Volcker Fed responded by raising rates, and combined with inflation, this pushed up mortgage rates sharply. Now the Powell Fed is embarking on a tightening cycle and mortgage rates have already increased significantly.

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