- The US real estate market resisted despite the crisis alarms.
- Analysts see similarities to the real estate situation in the 80s.
- Millennials help maintain the strength of the real estate sector.
Despite previous alarms about a potential downturn, the US real estate market has shown unexpected strength. Despite an increase in interest rates by the Federal Reserve and a spike in mortgage rates to a 23-year high, home prices, while experiencing some fluctuations, remained at record levels until July 2022, despite falling 5% from its peak in June of the same year.
Analyzing Past Real Estate Cycles
A group of the Bank of America, led by economist Jeseo Park, emphasized that the current situation is more reminiscent of the 1980s than the crisis of 2008. Alerts about the coming “trouble” are based on high rates of lending and, to quote the team: “We think the 80s is a better comparison for the current market than the real estate crash of 2008.”
Key Differences between 2008 and Today
The absence of signs of excessive housing development and a much lower mortgage debt burden on households than in the pre-GFC period indicate a different scenario. With household mortgage debt making up about 65% of American consumers’ disposable income compared to 100% pre-GFC, and stricter regulations on adjustable-rate mortgages, the picture is becoming less bleak. apocalyptic. The final words from Park and his team were clear: “We reiterate that we do not expect another real estate crash like in 2008“.
Current Scenario Corresponds to 80s
The aggressive policies of former Fed Chairman Paul Volcker in the 1980s, which pushed mortgage rates to 18% to combat 14% inflation, caused a recession but did not collapse housing prices. Currently, with 30-year fixed mortgage rates rising from 3.8% in March 2022 to over 7.5% today, a similar pattern is being seen. Despite the decline in mortgage applications and home sales, prices have not collapsed.
Demography, a Pillar of Strength
Just as baby boomers anchored the market in the 1980s, millennials are now a key demographic pillar. Park and his team pointed out: “Millennials are reaching prime home buying age, and building permits for single-family homes remain strong. This may help the market maintain some of its strength without collapsing. “
Finally, the real estate market in the US, despite the predictions and challenges, appears to be strong, supported by demographics and prudent regulations, which projects a future that, even if there are no challenge, seems to be moving away from the specter of a return to the 2008 crisis.
