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Then and Now: A Look at America's Housing Market Over the Past Decade

It’s been 10 years since the Great Recession, and a lot has changed in the housing market since then. While the current market has its share of struggles, such as inventory shortages and rising home prices, it’s in a much healthier spot now than it was a decade ago. In fact, a recent survey showed that Americans are more confident in the housing market than ever before. So, how did we go from a full-on recession to where we are today? Let’s take a look at some key events that took place over the past decade, as well as the current state of the market and what that means for you.

2006-2007: The Subprime Mortgage Crisis

In the years leading up to the recession, the housing market was booming. Demand was high, interest rates were low, and home prices were skyrocketing. This provided people an ideal opportunity to get their slice of the American Dream. At the same time, lending standards were very relaxed, and the market became saturated with subprime loans (mortgages provided to borrowers who may have difficulty repaying the loan as set by the terms).

But it all came to a head when the housing bubble burst. Housing demand dipped, creating a surplus of supply, and home prices fell.

People had been counting on their home values to rise so that the low monthly payments they were making would give them a big return in equity. As long as their home values continued to go up (as they had been doing for so many years), it seemed like a reasonable risk to take. The problem was — home prices had fallen. Many homeowners had interest-only or negative-amortization loans that would reset after a certain period of time, resulting in a (much) higher monthly payment, and due to the losses in equity, it was difficult or impossible to refinance or even sell their now underwater homes. This resulted in a massive number of mortgage defaults and foreclosures. Because those mortgages had been repackaged and sold to investors on the secondary market, the value of those investments also plummeted. This created a domino effect for the U.S. and world economy that ultimately led to the Great Recession.

2008-2009: The Great Recession

What started as a housing market crash became the greatest economic downturn since the Great Depression. Millions of people lost their jobs, and consumer spending plummeted. To stimulate the economy, the Federal Reserve (aka the Fed) began lowering interest rates, and Congress passed the Economic Stimulus Act of 2008. But it wasn’t enough. On September 29, 2008, the stock market crashed. Things weren’t looking good for the economy.

After a series of rate cuts, on December 16, 2008, the Fed lowered interest rates to 0.25% (effectively zero), where they remained until December 2015! (Learn more about the Fed Funds Rate and its impact on the economy).

Over the course of the recession and in its aftermath, gross domestic product fell by 4.2%, unemployment peaked at 10%, house prices dropped 33%, foreclosures reached a record high of 2.9 million, and Americans lost $16 trillion in net worth. It was a trying time for America.

2009 On: Economic Recovery

The Fed’s decision to lower rates to zero helped stabilize the economy, along with a number of economic stimulus efforts, like the American Recovery and Reinvestment Act of 2009 and the Fed’s purchase of nearly $1.75 trillion of mortgage-backed securities. In June 2009, the National Bureau of Economic Research declared the recession over. The economy began to strengthen: Gross domestic product (GDP) grew 19% from 2010 to 2017, and jobs were added for 88 consecutive months.

But for the housing market, things were still a bit rocky. Home values tanked, new home sales practically halted, and existing home sales hovered near their recession lows for a few years, until finally clawing back up above pre-recession numbers in 2013.

The recovery was slow and arduous, but finally the housing market began to bounce back.

  • In December 2015, the Fed raised rates for the first time in seven years, signaling their confidence in the U.S. economy.

  • From 2012-2017, new home sales grew an average of 74.6%, collectively.

  • In 2017, existing home sales reached 5.51 million — the highest level since the recession.

  • Housing starts also saw their best year since the recession in 2017.

Perhaps most importantly, home prices have finally exceeded their pre-recession peaks in most parts of the country. According to CoreLogic, the average house price is now 1% higher than its 2006 peak, and the average annual equity gain for homeowners was $14,888 in the third quarter of 2017.

It’s a New Dawn, It’s a New Day, and We’re Feelin’ Good

A lot has happened in a decade, and the housing market has experienced a healthy recovery from the dark days of the recession. Americans think so, too. In May 2018, housing confidence reached its highest level ever — with Fannie Mae’s Home Purchase Sentiment Index hitting 92.3.

What’s more, in 2017, foreclosures reached their lowest levels since 2005. From 2016 to 2017 alone, home values rose an average of 7%, meaning many of today’s homeowners may have equity available to them.

That doesn’t mean everything’s perfect, though. Housing inventory is currently struggling to keep up with demand, which is driving up home prices even further. And because we’re in a strong economy, the Fed continues to raise rates to keep inflation in check. For people wanting to buy a home, this can make it more expensive or reduce the amount of home they can purchase. Keep in mind, however, that rates are still at historic lows. The chart below shows the rise and fall of interest rates since 1954, and, as you can see, rates are nowhere near the highs of the 1980s.

Overall, it’s a good time for the U.S. housing market. Many homeowners are gaining equity, providing a nice nest egg for people to meet their current and future financial goals. In addition, rates are still historically low, making now an excellent time to purchase a home. But as rates continue to rise, affordability will continue to decrease, and as Millennials — the nation’s largest cohort of buyers — flood into the market, inventory will continue to drop, which will drive prices higher. Savvy buyers understand the cost of waiting and are seizing the opportunity to buy a home now.

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