According to Bank of America, there are remarkable parallels between the current housing market and the housing market of the 1980s.
High inflation, soaring mortgage rates, and pent-up demand for homes as a result of a growing population surge are a few of the similarities between the present and the 1970s.
We believe the 1980s are a better analogy for the current market than the 2008 housing collapse, Bank of America said in a note released on Thursday.
Inflation soared throughout the 1970s and into 1980, mortgage rates doubled from about 9% to 18% by 1981, and the peak home-buying age for baby boomers arrived.
In 2023, inflation has skyrocketed, the average 30-year fixed mortgage rate has doubled from approximately 3% to over 7%, and millennials are driving pent-up demand for homes as they enter peak home-buying age.
So, what does this imply for the future of the housing market?
According to Bank of America, this means that prices are unlikely to rise further and may decline slightly, but not as much as they did during the 2008 housing collapse.
The question is how long can today’s consumers tolerate high mortgage rates, as that pushes affordability for many millennials to unobtainable levels.
In the near future, persistently elevated mortgage rates should make the decision to purchase a home more difficult. Indeed, favorable demographics were insufficient to support the market in the 1980s, and they are unlikely to be sufficient to stimulate the market this time around, according to Bank of America.
The bank added that there are additional parallels between the current housing market and that of the 1980s. In 1979, home prices increased by more than 16%, but in 1982, year-over-year growth slowed to just 0.5%. In addition, existing home sales dropped 54% from their zenith to their trough.
