2018 Market Resembles 1994 Conditions

December 14, 2018
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Photo: Unsplash/Ria Alfana

The current housing slowdown is being compared to the 2007 downturn, but new analysis finds that today's conditions have more in common with the 1994 U.S. housing market.

1994's cycle downturn was milder than the market crash in 2007, and bears more similarity to the current market in terms or rising mortgage rates, and a near-zero yield curve stemming from rate hikes. In 2018, rates have increased roughly 1 percent. In 1994, rates increased 2.5 percent for the year. Writing for Bloomberg, Conor Sen explains that today's market has tighter lending standards, less inventory, and household mortgage debt is falling, all showing difference from the current slowdown to the 2007 crash. As well, recent rises in mortgage application volume may mirror the market stabilization that occurred in 1995 for 2019. 

The economy in 1994 is remembered largely for financial market turmoil brought about by sharp increases in the federal funds rate by the Federal Reserve. During that year, the Fed increased its target rate for lending between financial institutions to 5.5 percent from 3 percent, a 2.5 percent increase in one calendar year. Perhaps not surprisingly, mortgage rates increased sharply as well. The average 30-year fixed mortgage rate increased by around 2 percentage points in 1994, ending the year north of 9 percent. New-home sales slumped. In December 1993, the seasonally adjusted annual rate of new single-family-home sales was 812,000. A year later, in December 1994, it had fallen over 20 percent to 629,000.

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