1) What's extremely interesting is that home prices, for a very long time, simply tracked the rate of inflation.
More specifically, from 1890 to 1990, over 100 years, inflation-adjusted prices never went more than 15% above their long-term trend line.
— Nick Gerli (@nickgerli1) May 15, 2025
3) And it was in this period that many of the common narratives about the housing market were established.
"It's a good, stable investment".
"It grows at 3% per year".
"Buy a house as your nest egg".
All these things were true from 1890 to 1990.
But sometime in the…
— Nick Gerli (@nickgerli1) May 15, 2025
5) So all of a sudden speculation took off.
And in the late 1990s, you saw the first real detachment of home prices from the rate of inflation.
Leading up to the 2006 housing bubble, where inflation-adjusted prices peaked at about 70% above the long-term historical average. pic.twitter.com/Koj1kKK1kX
— Nick Gerli (@nickgerli1) May 15, 2025
7) Some people like to blame bad mortgages for the bust that happened from 2007-12.
But the real culprit was the Federal Reserve.
In the early 2000s, they lowered the Fed Funds rate to 1.0%.
An unprecedentedly low level for peacetime. Dubbed the "Greenspan put", after… pic.twitter.com/GaoTz6wz0F
— Nick Gerli (@nickgerli1) May 15, 2025
9) They of course used cheap and risky mortgages to fuel the bubble, and by 2006, prices were as much as 30-40% overvalued in many parts of the US Housing Market.
In a place like Florida, home values reached 30% overvaluation in March 2006, near the bubble peak.
A clear… pic.twitter.com/4LBvIrIDDY
— Nick Gerli (@nickgerli1) May 15, 2025
BREAKING 🚨: U.S. Housing Market
First-time home buyers have fallen to a record low 📉 pic.twitter.com/P5xH1sebTG
— Barchart (@Barchart) May 15, 2025