Here’s why the U.S. housing market hasn’t crashed
A looming recession, repeated interest rate hikes, and mortgage rates that have more than doubled. One would think such economic forces would lead to a housing crash. I certainly did. While home sale prices in several metros across the country have seen double-digit reductions, overall the national median home price has barely budged, in fact, according to Zillow US home values are up two percent year-over-year. What gives?!
First, housing crashes don’t happen overnight. They happen in stages. Case and point, the 2008 housing crash. Home sales began to plummet in late 2005 and 2006 followed by what some call a ‘dead cat bounce’- that is a short-term recovery followed by a protracted decline.
To illustrate this point let’s look at the Case-Schiller Home Price Index or HPI. This index measures housing price inflation by looking at repeated sales of similar single-family houses. using data from 16 of the nation’s 20 largest metropolitan areas or metros. The values use a three-month moving average. This chart uses January 2000 as the baseline of 100. In the wake of the 911 attacks, the Federal Reserve cut the fed funds rate to nearly zero where it remained for several years fueling one of the largest run-ups in home prices. By August 2006 the Case-Schiller Home Price Index peaked at 184 showing that home prices had appreciated by an average of 84% by May 2006. Then the subprime mortgage crisis began to gain steam steadily pushing down home price appreciation rates through February 2009 when the index had fallen to 149, or 20% below its 2006 peak. This was followed by a handful of false recoveries or dead cat bounces in August 2009 and June 2010. In total, it took nearly six years for the index to reach its trough.
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