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The Great Recession misled millennials: It made them think high home prices will eventually come down

Millennials are the largest homebuying cohort of the 2020s.

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  • The housing markets of the mid-2000s and early 2020s share some similarities.
  • However, the end of the two hot cycles will be very different in nature.
  • That’s bad news for prospective millennial buyers hoping to see home prices fall.

History often repeats itself — but when it comes to the current housing market, don’t hold your breath. 

If you were a homebuyer in the mid-2000s, today’s hot market might look eerily familiar. Like many of your fellow Americans, you might be wondering when this housing cycle will come to a close and bring prices back down to earth. 

It won’t be that simple this time around. 

That’s because the US housing market is in uncharted waters and it’s throwing homebuyers for a loop. 

A typical real-estate cycle occurs in four phases: expansion, hyper supply, recession and recovery. This is the pattern that gave rise to the housing bubble of the mid-aughts, a time when a combination of cheap debt, predatory mortgage lending, and complex financial engineering led to a foreclosure crisis as well as a credit crisis among investors — and by 2008, a global recession.  

During the Great Recession, US home prices — which had soared during the housing bubble of 2006 and 2007 — tanked to a 17-year low. This created a chance for many Americans to afford a home if they had managed to escape the crash financially unscathed.

As some of the factors that contributed to the housing crash of 2008 reemerge, many Americans, especially millennials — the largest homebuying cohort of the 2020s who witnessed their parents navigate the rocky real-estate landscape of the 2000s — are expecting a similar outcome. However, the current housing market is a vastly different beast. Although the US is bracing for a possible recession in 2023, home prices won’t be crashing anytime soon.

As Axios’ Nathan Bomey recently wrote in a newsletter, “As an older millennial, the financial crisis trained me to think that housing prices that go up must come down. But this has the makings of a softer landing.”

The housing shortage continues to drive home prices 

The nation’s real-estate market is in disarray. Home prices and rents have soared to new highs as potential buyers scramble for America’s limited amount of housing inventory. All the while, affordability has plummeted for millions of households as the reality of achieving the American Dream becomes increasingly bleak.

Instead of a hard crash this time around, the real-estate market is bracing for a softer landing — and that means home prices won’t fall like they did in 2008.

In 2022, housing volatility isn’t attributed to lax lending standards but instead an imbalance of housing inventory and demand that has driven affordability to new lows. 

“I don’t think home prices will fall anytime soon,” Holden Lewis, a home-and-mortgage analyst at NerdWallet, told Insider. “Demand still exceeds the supply of available homes for sale, the economy is creating jobs, and lending standards are strict. Those factors work to keep home prices from declining.”

According to Freddie Mac — a publicly traded firm created in 1970 to expand the secondary market for US mortgages — the US housing market currently needs more than 3 million homes to meet the demand of would-be homebuyers. According to Realtor.com, the dearth of housing supply has helped to drive the national median listing price to an all-time high of $425,000.

While buyer demand has somewhat cooled due to mortgage-rate hikes spurred on by the Federal Reserve’s attempts to cool inflation, home prices are still climbing in neighborhoods across the country.  

“Normally, higher mortgage rates cause home prices to cool,” Nadia Evangelou, the senior economist and director of forecasting at the National Association of Realtors, told Insider. “But, I don’t expect home prices to drop in 2022. We will see slower home-price appreciation, but not a price drop.”

According to NAR, despite mortgage rates rising above 5%, home prices still rose 15% in April. Over the last year, the organization says rapid home-price increases and mortgage-rate growth have plummeted housing affordability by 29% — representing the steepest annual decline on record. “Although higher mortgage rates hurt affordability, home prices continue to rise,” Evangelou said. 

NAR expects home prices to rise 5% by the year’s end. For many millennial buyers, this could put a pin in their homeownership dreams. 

Are you a first-time homebuyer or finding creative ways to cope with the housing market right now? Contact this reporter at alloyd@insider.com.

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