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Housing: A Somewhat Similar Period

A period that is somewhat similar to the current housing market was in the late 1970s.

House prices increased 14.7% in 1977, 15.7% in 1978 and 13.9% in 1979 (Case-Shiller National Index).

Over the last 12 months, house prices have increased 13.2%.

And currently demographics are favorable for home buying with a large cohort moving into their 30s, just like in the late 70s, with the leading-edge boomers turning 31 in 1977.

But there are stark differences too.
First, inflation was very high in the late ’70s, averaging close to 9% over those 3 years.   Inflation over the last year was up 5.0%, but that was mostly over the last few months – and is likely transitory (inflation was embedded in the late ’70s).
Another major difference is housing inventories are much lower today (a key reason why house prices have jumped).  There are a number of reasons for the low levels of inventory, including investor buying houses and condos following the GFC (mostly in the 2010 to 2015 period), and houses taken off the market due to the pandemic.  Both the pandemic and strong investor buying following the financial crisis are unique to the current housing market.
The ’70s house price boom stopped in the early ’80s, as the economy went into recession twice with the unemployment rate peaking at 10.8% in 1982 (higher than the peak following the financial crisis).   This was directly related to the Volcker Fed raising rates to fight inflation.
House prices declined regionally in the early ’80s, but just flattened out nationally.  In real terms, national house prices fell about 10% over a three-year period in the early ’80s – and didn’t regain the earlier peak for almost 7 years.
Currently there is no recession on the horizon to slow house price gains, and it is unlikely the Fed will tighten aggressively any time soon. 
Although there are some similarities to the late ’70s, there are also obvious differences.  
My guess is the key will be inventory.   As long as inventory stays low, house prices will continue to increase rapidly.  If inventories increase, house price gains will slow.

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