Our reporting relies on your support. Contribute today! 

Help us reach our goal of $250,000. The countdown is on!

We determined in a previous episode that despite an overwhelming belief in the idea, job losses did not trigger the early-1990s housing downturn. Something else must have been at work…but what?

Today we’ll turn our suspicious eye toward interest rates. After all, potentially higher mortgage rates are the clouds on the horizon of even the sunniest real estate forecast. As long as rates stay low, bullish housing analysts routinely tell us, home prices should hold up. (This statement is often followed by a silent prayer to the gods of the bond market). So it seems reasonable to wonder whether uncooperative interest rates were at least partly responsible for the 90s downturn.

The answer in this case is a resounding “no.” The accompanying chart reveals that rates dropped right alongside home prices for the bulk of the housing correction.

Given the constant claims to the contrary, the fact that home prices can fall even as mortgage rates drop must come as a surprise to many a home price apologist. But the relevant point for our purpose today is that interest rates can in no way be blamed for the housing bust of the 1990s.

Unemployment appears to have been a contributing factor but not the primary one, and if anything interest rate movements actually lessened the severity of the correction. So again we ask: what was the primary cause of the last housing downturn? Check back next week for the answer…

– RICH TOSCANO

Leave a comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.