By Grayson Shaw

Today’s real estate market strongly resembles the one from 1978-1981. In that period inflation was running high, interest rates were increased, and of course, housing prices went up and stayed up.

Since 1967 there has only been one period where median home values decreased significantly – the well-known housing bubble that sparked the 2008 Great Recession.

Like 1978-1981 or more like 2007-2012?

Simply put, the 2008 financial crisis (aka the Great Recession) was caused due to unsecured loans being given in abundance to anyone who wanted to buy a house. The housing market had gotten hot, and many people wanted to take advantage of that by using debt to buy homes and make a quick profit – they assumed the growth would never stop.

This went on for a while, but eventually people stopped paying these artificially inflated prices, causing over-leveraged people to not be able to sell their homes. What followed were mass foreclosures, and a mess that many still have not fully recovered from today.

Inflation

In the past few years, we have experienced the highest inflation since the early 1980’s. From 1978-1981 the average rate of inflation was 10.7%. This on paper is higher than 2021-2023 which averaged 5.6%. Prices of food, energy, home goods, and real estate have all risen as a result of the US dollar’s continued loss of value.

If anyone says that inflation is going to reverse, they are either naïve or lying, and usually it is the latter if it is coming from an economist. The prices that we have today are here to stay, and “getting inflation under control” means returning the annual rate to 2%, not bringing back 2019 prices. So yes, houses and rent are expensive, and yes, it did happen quickly. However, the fundamental reason for why prices are so high is because there are more dollars chasing the same amount of goods. Our favorite snacks at the grocery store cost twice as much as they did five years ago, and historically once they go up, they stay up.

You Decide

The question here is whether our time right now is more similar to the inflation of the early 80’s, or the nonsense of the 2008 housing crash. Is there something that is artificially raising the cost of that cozy house you have been eyeing; or is it that it has become more expensive along with everything else? You make the call.

Grayson Shaw is an investment adviser representative with Christian Values Investing in Statesboro.