Comparing the Current Housing Market to the 1978 to 1982 period

In March 2022, I wrote: 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.

And I suggested we compare the current situation to the 1978 to 1982 period, and I discussed a few similarities between the periods (no comparison is perfect):

1. Demographics were similar

2. House prices increased rapidly.

3. Inflation picked up

4. The Fed raised rates to bring down inflation.

5. House payments increased sharply

Here is a review and a discussion of what this means for house prices.

Demographics were Somewhat Similar in Both Periods

In the 1978 to 1982 period, demographics were very favorable for homebuying as the baby boomers moved into the first-time homebuying age group (similar to the millennials now).

This graph shows the longer-term trend for three key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap). This graph is from 1960 to 2060 (all data from Census: current to 2060 is projected).

NOTE: This doesn’t include the recent pickup in legal immigration.

We can see the surge in the 20 to 29 age group last decade (red). Once this group exceeded the peak in earlier periods, there was an increase in apartment construction. This age group peaked in 2018 / 2019 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak around 2023.

For buying, the 30 to 39 age group (blue) is important. The population in this age group is increasing and will increase further over this decade.

When we look back at the 1978 to 1982 period, the 30 to 39 age group (blue) was increasing even more than today (supporting house prices).

House Prices Increased Rapidly

The three periods over the last 50 years when house prices were increasing the fastest were 2021/2022, 1978 and during the housing bubble (around 2005). The housing bubble period was very different in many ways, so the comparison to 1978 to 1982 seems more appropriate.