Money Follows Home Prices

Key Insights from the Image:

  1. 1970s–1980s:

    • During the 1970s, there were periods of falling home starts (i.e., new housing construction) followed by periods where real home prices also began to fall.

    • The 1980s show an extended period of falling starts (marked by the empty bars), with a few moments of falling home prices occurring after housing starts had already begun to decline.

  2. 1990s:

    • The 1990s exhibit a mixed pattern where both home prices and housing starts fell simultaneously during certain periods (the overlapping striped boxes).

    • The falling prices and starts during this period align with the economic downturn of the early 1990s.

  3. 2000s (Financial Crisis):

    • The 2000s stand out due to the financial crisis and the resulting sharp drop in nominal home prices, which were coupled with a steep decline in housing starts. This period highlights the severe impact of the Great Recession on the housing market.

  4. 2010s:

    • Following the financial crisis, the 2010s experienced periods of stabilization, but both housing prices and starts remained subdued at low but positive levels. This period marks a recovery phase after the deep housing crash.

  5. 2020s (Pandemic Impact):

    • The chart highlights the pandemic and its aftermath in the 2020s, showing an initial decline in housing starts at the onset of COVID-19.

    • However, as of the most recent data, both prices and housing starts are noted to be running at low but positive levels, indicating recovery but not full acceleration.

Surprising Element:

One surprising observation is how housing starts tend to precede price declines. This pattern suggests that developers reduce new construction in anticipation of lower demand or economic downturns, which is then followed by declining home prices. This can serve as a forward indicator of trouble in the housing market.

Summary of Key Data Elements:

  • Relationship Between Prices and Starts: Housing starts typically fall before home prices do, as builders respond to weaker demand or economic uncertainty.

  • Crisis Periods: The most significant periods of synchronized declines in home prices and starts occurred during the early 1980s and the 2008 Financial Crisis.

  • Pandemic Recovery: The 2020s show a post-pandemic recovery with positive levels of both starts and prices, though they remain relatively low.