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Since 1980, there have been four major real estate crashes, each with a different cause. What’s extremely concerning is that all four sets of circumstances that triggered those real estate market crashes eerily parallel exactly what is happening right now.
For the past year, my gut has been screaming major downturn ahead. Until a few weeks ago, the numbers didn’t seem to support that conclusion. Recent events, however, have changed my mind.
Here’s a brief overview of the factors that led to the four previous real estate downturns that are now present in today’s market.
The 1980s crash
When I was first licensed in 1978, interest rates were 9.75 percent for an ARM and 9.875 percent for a 30-year fixed-rate mortgage. The market was great — I sold two houses my first month in the business and eight the following month. What I didn’t know was a market crash was looming on the horizon. According to Investopedia, the following events led up to that crash.
- On Nov. 12, 1979, Jimmy Carter shut down oil imports from Iran, leading to panic buying, long gas lines and gas rationing in many states.
- Regulators also ordered refiners to restrict the supply of gasoline.
- The Federal Open Market Committee (FOMC) was reluctant to raise target interest rates too quickly. This hesitation contributed to rising inflation late in the decade. The jump in inflation was accompanied by higher prices for energy and a range of other consumer products and services.
- As a result,…