The housing market is in grim shape. People yearn to buy but are thwarted by rising mortgage rates, unaffordable homes and an inadequate supply of properties for sale.

The hopeful news is that America has been through this before — in 1981 — and things eventually got better. The sobering news is that the early-’80s housing market stayed alive courtesy of some factors that barely exist this time around. We will have to construct a new path out of this mess.

How 2022 resembles the early ’80s

The similarities between now and then start generationally: In 1981, the oldest baby boomers were 35 years old, and that cohort was in full home buying mode. The first millennials were born that year, and that next-largest generation has been diligently

Both generations were walloped by rapidly rising mortgage rates following a series of rate hikes by an inflation-fighting Federal Reserve:

• When the average interest rate on the 30-year fixed-rate mortgage reached an all-time high of 18.63% in October 1981, it had risen almost 5 percentage points in 12 months. Rates had gone up almost as fast during a spell in 1980.
• This year, when the 30-year mortgage reached 7.08% in early November, it had gone up 4.1 percentage points in 12 months. (All percentages are from Freddie Mac’s weekly survey, going back to 1971.)

The rapid climbs in mortgage rates forced would-be home buyers to skedaddle out of the market. Year-over-year existing home sales plunged 22.3% in 1980 and then another 18.6% in 1981, according to historical data from the National Association of Realtors. This year, the pace of existing home sales dropped 28.4% in the 12 months ending in October, according to the NAR.

Finally, “rate lock-in” accompanied both eras. That’s when homeowners keep their properties off the market because they want to hang onto their low-rate mortgages.

• March 1981: A real estate executive told The New York Times that home sales were being inhibited because “Nobody wants to lose their low-interest mortgage.”
• September 2022: NAR chief economist Lawrence Yun said, “Some homeowners are unwilling to trade up or trade down after locking in historically low mortgage rates in recent years.”

See original article here.