We’ve seen this market cycle before — sort of

In the 1980s, mortgage rates and home prices soared after a housing boom, then sales dried up — much like today’s market. Will our recovery look similar too?

Two years ago, the housing market was in a "déjà vu" moment, exhibiting striking similarities to the market of the early 1980s, according to First American Chief Economist Mark Fleming. 

And now? The market is still stuck in that decades-old cycle — but it looks like it may start to head in a different direction.

Echoes of the past

Between 1978 and 1982, a demographic shift was affecting the market: Baby boomers were in their prime homebuying years, leading to a surge in sales. Home prices — and inflation — spiked, but as mortgage rates jumped to combat inflation, home sales fell nearly 50% while prices continued to climb, creating a significant affordability gap. 

Sound familiar? A similar series of events occurred between 2021 to 2025 as another large demographic group — millennials — entered their peak homebuying years. The pandemic served as a plot twist, sending mortgage rates to historic lows, which added fuel to the sales boom before inflation arrived.

But arrive it did — followed by a quick rise in mortgage rates — leading to a slowdown in sales and affordability challenges as home prices remained elevated. 

A slower rebound this time around

So what does that mean going forward? Will the coming years be similar to the mid-to-late '80s, which saw home sales rise whenever rates went down significantly?

Probably not, said Fleming. While the current real estate market is similar to the market of 40 years ago, mortgage rates are behaving differently.

"So, history doesn't repeat itself, but it often rhymes. The rhyme this time will be different because we don't expect rates to decline significantly in the coming years as they did in the mid-1980s," Fleming said.

By 1982, the 30-year mortgage rate was starting to descend from its 18% peak in 1981, taking a bumpy ride down to under 10% by 1987. While the spike from less than 3% in 2020 to nearly 8% in 2023 was painful, the course correction to historical norms — meaning somewhere in the 6-8% range — won't be as dramatic. Today's rates of around 6.3% aren't expected to get much lower anytime soon.

"The mid-1980s will not be like the mid-2020s because the market rebound then was driven by falling mortgage rates," Fleming said in an email. "Now, the market will rebound, more slowly, and not because of lower mortgage rates, but because life happens," he predicted.

"Today, the challenge is how to grow a market based on life events, not rate events, and do so in a way that is affordable for more would-be homeowners who won't be able to rely on mortgage rate-driven affordability gains."

A steady increase in home sales ahead?

While home sales have remained tepid this year, the pace is expected to pick up during the second half of the decade. In its forecast for 2026-2030, U.S. News & World Report predicts that existing home sales will gradually rise from around 4.55 million in 2026 to 4.9 million in 2030. Factors that could impede growth include limited suitable land, higher costs for materials and the impact of immigration raids on construction.

But slow growth could be a good thing: The rise in home sales in the mid-1980s did not end well for the housing market. By 1989, the impact of the savings and loan crisis as well as an economic recession led to a multi-year decline. Existing home sales fell from an annualized rate of around 3.75 million in the late '80s to under 3 million in the early '90s.

Fleming believes the lessons learned from the S&L era and from the subprime lending practices that preceded the 2008 financial crisis have made the U.S. housing market less vulnerable.

"Today's market is characterized by loans made to high-quality borrowers, with relatively little subprime risk exposure," Fleming said. "Practically every mortgage is fixed, and those that aren't are traditional adjustable-rate products without payment shock features. And almost all homeowners are wrapped in a safety blanket of equity."

By Dave Gallagher on Real Estate News