In a recent revelation that sent shockwaves through the real estate sector, the National Association of Realtors (NAR) disclosed that existing home sales in December 2023 hit their lowest levels since 1995.
With a meager 4.09 million transactions, the housing market appeared to plunge into an abyss, drawing alarming parallels to the notorious Global Financial Crisis.
However, as economists delved into the numbers, an economist report released by NAR on Monday shed light on a crucial distinction – the “world was much different” in the ’90s, the last time home sales were this low.
A Tale of Two Eras
To make sense of the confusion associated with today’s housing market, economists have drawn on decades past.
Mortgage rates and inflation have been compared to the market of the 1980s, but recent home sales reports have drawn more comparisons to the mid-1990s.
Data revealed last week by the National Association of Realtors shows that existing home sales in December 2023 dropped to their lowest levels since 1995. The month had just 4.09 million transactions, even worse than figures from any month during the entire Global Financial Crisis.
Comparing Population Dynamics
The first major difference between these two housing markets is the total U.S. population.
In 1995, the population was a bit more than 266 million, but today more than 336 million people live in the U.S., meaning that another 70 million people can barely match a housing activity level from nearly three decades ago.
“That answer becomes clear when looking at both inventory and affordability,” Jessica Lautz, deputy chief economist and vice president of research at NAR, wrote in this week’s report.
In terms of inventory, there were 1.58 million single-family homes up for sale in December 1995, compared to just 870,000 last December.
Affordability Challenges
The other major difference between the two housing markets is affordability. In 2023, mortgage rates spiked to a two-decade high at 8%, which strained new homebuyers attempting to enter the market. Although mortgage rates in 1993 averaged 7.93%, according to NAR, they started trending downward by 1995.
As we try to go through the complexities of the housing market, it’s clear that the challenges of 2023 are not a mere repetition of history. The echoes of 1995 provide a framework, but the unique landscape of today requires a nuanced understanding.
With mortgage rates expected to fall modestly, sellers adjusting strategies, and a potential improvement in affordability, there’s room for measured optimism in the real estate market for 2024.
However, whether 2023 will be remembered as an incomparable anomaly or a harbinger of lasting change remains to be seen. The housing market, like history, continues to unfold in unexpected ways.
What are your thoughts? Is history repeating itself? How do you think the current housing slump will shape the future of real estate?
Do you think the housing market can weather the storm? Do you believe that exploring the lessons from 1995 can be helpful for today’s homebuyers?
