Crash Course in Housing Crash History

With the housing at all time high, many are wondering if we are due for a housing correction some time soon. At the same time, recent ~10% drop in SP500 and massive commodities jump, we might expect volatile times ahead in the markets overall. As we mentioned before, nobody can predict timing and magnitude of any crash (unless in possession of some good insider information). Out of curiosity, if we do get a crash this year, or 100 years from now, how big could it be compared to prior crashes? The latest crash is all we hear about recently. What about crashes before?

Here we look at the history of housing crashes. We explore case schiller home price index on a linear scale and look at housing price pullbacks in nominal terms (not inflation adjusted). Here we look at a national average, disregarding local geographies for now. What we see is that in 1890 the home prices dropped by 10%, preceding the economic crash of 1893 (panic of 1893). It took 4 years to break even and 1 year to reach price bottom. Soon after the prices reversed, in 1894 another price pullback happened, this time more massive. It took 12 years to break even and 2 years to reach the bottom, where houses traded at 22% discount.

Once prices recovered, the next crash happened shortly after, preceding the Panic of 1908. In 1907, the prices dropped 12%, it took 2 years for prices to bottom out, and another 10 years to break even.

The next crash did not happen until the roaring 20s. In 1920, the minicrash registered 2% price pullback, 1 year to bottom out, and 3 years to break even. The next few years were a quiet before the storm. In 1925, well before the Great Depression, the home prices started to slide. They found some support in 1927, but began to drop again in 1928, until they reached the bottom in 1933 – the peak of the Great Depression. The next 6 years saw a price recovery, which ended with another price pullback bottoming in 1941. This was the Great Depression home price crash. It registered 30% price drop, the highest in history, and even higher that 2008 GFC. It took 14 years to reach the price bottom and 20 years to break even. Imagine what that would do to our current economy if anything like that were to repeat now.

The next decades seen a massive price rise until 1989 when another minicrash occurred: 1% drop, 2 years to bottom and 4 years to break even. Like before, this minicrash preceded the massive crash in 2008: 26% price drop, 5 years to bottom and 10 years to break even.

And the winner is – the Great Depression housing crash. The second closest is 2008 GFC crash, both were 75 years apart.