The housing market through the decades

The housing market is a pillar of the economy and society at large, simultaneously shaping and being shaped by economic shifts and societal trends. From the founding of the country to the mortgage crisis of 2008 and all the way to today’s trends — the housing market is constantly in a state of transformation.

This article will explore the evolution of the housing market through the decades. You’ll learn about key components of the housing market and the impact these can have on homeownership, all to help put current market trends into context and navigate the housing market more effectively.

Keep reading to find out:

• What is the housing market?
• Historical trends in the housing market
• COVID-19 and the housing market
• Supply and demand in the housing market
• Mortgage interest rate trends and the housing market
• Housing market trends
• Buying real estate
• Summary

The housing market refers to the buying and selling of residential properties, such as houses, apartments and condominiums. It’s a sector of the economy that is concerned with the supply and demand for housing, the prices of homes and the financing of real estate transactions.

A range of factors can influence the housing market including:

• Interest rates
• Economic conditions
• Demographics
• Government policies
• Local market conditions

The health of the housing market can both impact and reflect the greater economy, as it can be a major driver of consumer spending and affect the construction industry, for example.

The housing market is an integral part of American society. The promise that anyone can own their own home — with some hard work and perseverance — is one of the foundational elements of the American dream. The historical trends in the housing market help to show us how this idea comes to life.

1776 to 1928: The Revolutionary period through industrialization

It’s fair to say that the Revolutionary War was, in part, fought over the right to own property — especially in the form of land. As an agrarian society, land was particularly important to the farmers, and merchants, of the period. In fact, land ownership was often a requirement to be able to vote in the early United States.

Later, the shift from an agrarian to an industrial society drew more people, both citizens and immigrants, to cities for better access to jobs. This effect created more demand in city centers, which increased land prices and pushed people into new locations, including early suburbs. Around the turn of the 19th century homeownership rates hovered around 45%.

1929 to 1945: The Great Depression and World War II

The Great Depression and World War II triggered significant changes in the housing market. Following the stock market crash of the late 1920s, many people lost their jobs and were unable to pay for their homes, leading to record foreclosures. Then, World War II caused a temporary pause on domestic housing construction as many resources were diverted to the war effort. To help jumpstart the housing market and facilitate homeownership in the aftermath of the war, the government created various agencies and policies, like the Federal Housing Administration (FHA) and mortgage insurance.

1945 to 1970: The post-war housing boom

After World War II, the suburban housing market grew astronomically. Returning soldiers and their Baby Boomer children increased the need for affordable, single-family homes close to (but not in) urban centers. Concurrently, the government built interstate highways and modes of transportation improved to help facilitate travel between the suburbs and cities. This allowed even more people to easily travel to and from their place of work and place of living and by around 1960, homeownership rates increased to over 61%.

1970 to 2000: Interest rate highs and lows

As Boomers came of homebuying age during the 1970s and early 1980s, interest rates rose significantly, driving the average 30-year fixed mortgage rate to over 18%. These high rates effectively scared borrowers away. But then, following the loosening of lending requirements and a bull market that would last through the 1980s and 1990s, mortgage interest rates dropped dramatically to under 7% by May 1998, which would drive robust demand for homes into the new millennium.

2000 to 2009: The mortgage bubble and the Great Recession

As 1999 flipped to 2000, the housing market continued to boom. Interest rates dropped even more, and lending standards loosened further as lenders provided subprime mortgages to borrowers with lower credit ratings. This new type of mortgage carried higher, and often variable, interest rates. As banks took more and more risky borrowers on, the housing bubble inflated.

When variable rates shifted, and new payments came due, the bubble burst, giving us the subprime mortgage crisis and the Great Recession. Stock markets plummeted, unemployment rates soared and many people lost their homes — proving just how essential the housing market is for the economy.

2010 to 2020: A period of recovery

Eventually, the crisis would clear and trigger significant changes in lending practices. Boosted by new policies deployed in response to the Great Recession and recalibrated property prices, the housing market began to bounce back, with home prices eventually surpassing pre-crisis highs.

Lower mortgage rates and ever-increasing demand pushed prices further upward, which created new challenges for first-time buyers, especially. While homeowners saw their investment appreciate significantly, many buyers remained priced out of the market entirely.

With already high home values and low interest rates in place, COVID-19 would trigger an even hotter market, as people fled densely populated areas for locales that off ered more space, both in and outside the home. Amazingly, between Q2 2020 and Q4 2023, the median sales price for homes would rise from $317,100 to $423,200.

Coinciding with this dramatic rise in prices? Inflation. The return of 1970s-style inflation triggered higher base interest rates set by the central bank. Consequently, mortgage rates shot up to 7.79% in October 2023, the highest since November 2000.

But even 7% is far lower than the highs seen in the 1980s. In Q2 2024, the median home prices nationally dropped to $412,300. While every market has local variations, this may hint at further drops in home prices yet to come.

As you’ve seen throughout the history of the housing market, mortgage rates can have a big impact on borrowing behavior when higher mortgage rates typically sway people away from making home purchases. However, an active housing market may help stimulate the economy in other beneficial ways.

For example, a healthy housing market:

• Creates more jobs in the construction, real estate and related sectors.
• Stimulates consumer spending.
• Stimulates the economy from the buying and selling of mortgage-backed securities.
• Generates governmental revenue through taxes.

How the government impacts the housing market

When federal interest rates rise, it often becomes more expensive for lenders to borrow capital. This trickles down to mortgage rates, making it more expensive for borrowers to take out and pay back their loans. However, when federal interest rates are lowered, borrowing costs also tend to become more affordable.

Outside of adjusting the federal funds rate, the government uses various programs and legislations to help establish price stability and regulatory safety for lenders and borrowers. For example, in 2008 the Federal Reserve enacted the Housing and Economic Recovery Act (HERA) to address the mortgage crisis. This act helped expanded the capabilities of the FHA, provided mortgage assistance, established stronger underwriting standards and more.

All of the above factors (economic conditions, interest rates, supply, demand, demographics, etc.) may cause trends in the housing market that affect our relationship with buying, owning and financing homes. For example, there have been trends in:

• Sustainable living
• Smart homes
• Rental property investments

Sustainable living

Sustainable living is a type of lifestyle that aims to be more conscious of (and attempts to minimize) its impact on the environment. While it’s perhaps more widely associated with things like plant-based diets thanks to pop culture, sustainability has begun to influence homeownership as well. Some examples include:

• The development of eco-friendly ways to power homes, such as solar panels.
• The creation of green mortgages as a way to encourage the financing of sustainably-built homes or renovations that increase sustainability, like improving a home’s energy efficiency.

Smart homes

As seemingly all our devices become “smart,” smart homes are one of the latest housing market trends. Modern smart homes often feature technologically advanced, wireless features that may be controlled remotely. That means no longer having a night out ruined by wondering if you turned off the oven or activated your alarm.

Rental property investments

Recent years have also seen a rise in home sharing and rental platforms, enhanced by social media and mobile apps. This shift has created a noticeable disruption in the hospitality industry as people start to turn to these rental platforms before checking a hotel’s availability.

Beyond vacationing, technological advances have also made purchasing and managing an investment property easier than it has been in the past. Gone are the days when you’re required to live near your investment property. Now you have the freedom to live in one corner of the globe while collecting rental income from another.

You may be wondering if it’s the “right time” to invest in the housing market. While evaluating any big investment and coming up with a strategy before making a move is best practice, the truth is there’s rarely a “right time” for anyone. Despite certain factors pushing toward “yes” and certain factors pushing toward “no,” it may come down to three things:

• What you need.
• How urgent your needs are.
• How this investment might affect your financial health.

If you need to be in a certain school district, are looking to accommodate your family or are relocating for a job, you may not have the luxury of timing. Of course, renting is always a possibility, but if you’re in it for the long-haul and you find the right space, it may be worth buying a home if you can do so comfortably.

A lot of things can change the value of a home in the short term, but you may profit in the long term by selling or renting out your property. Staying in your home for about five years may be a way to ensure better odds at breaking even on your investment.

Potential benefits of buying real estate

There are many potential benefits of buying real estate — that’s why it’s such a popular investment. Let’s take a look at some of the most attractive examples:

• You have somewhere to live: This might be obvious, but buying a home means you have somewhere to live. The roof over your head isn’t contingent on a landlord — although it is contingent on making prompt mortgage payments.
• You may have an appreciable asset: It’s likely that your property will appreciate (increase in value) as time goes on. As mentioned, people who stay in their home for five years or more often profit from the amount their home’s value increased.
• You have greater autonomy: If you own your home, it’s yours. You can do what you want. Get creative with your décor. Outside of zoning regulations, potential HOA or condo association rules, insurance and being a generally good neighbor, you can make it truly yours.
• You have opportunities for passive income: Passive income means a source of money coming in with relatively low effort. Although buying a home isn’t the blueprint for “passive,” investing in a rental property may be an alternative way to build your wealth.

The basics of buying real estate

Buying real estate is a major financial undertaking. It’s not something most people recommend doing impulsively. If you’re planning on financing your purchase, you’ll want to begin the mortgage process by shopping around and prequalifying for a loan. Once you’ve gathered your mortgage documents and decided on the down payment amount, you’ll want to choose your loan terms and officially apply for your mortgage.

Before you embark on your journey, consider keeping the following tips in mind:

• Clearly define your purchase goals.
• Assess your finances.
• Research the current housing market trends.
• Consider working with a real estate agent to find the right property for you.
• Get a home inspection before finalizing your purchase (this will likely be required by your lender anyway).
• Carefully review all contracts and mortgage documents. Consider using a trusted real estate attorney.
• Think about resale value. Although it’s considered a long-term strategy, you may want to consider what selling might look like. Is, or will the location be desirable? Do you plan on making renovations that increase the home’s value?

The housing market is a microcosm of the greater economy in which various parties facilitate the purchase and exchange of property. Beyond the power of purchasing and selling property, the housing market impacts our communities by shaping individual lives and ultimately, driving economic growth. The nature of supply and demand greatly impacts the housing market's climate. As the housing market evolves, different trends pop up along the way often reflecting the current culture, like sustainable living, smart homes and rental investments. Before buying into the current housing market, it can be helpful to understand why you’re buying and what you can comfortably afford.