Why are we all pretending that the real estate market is supposed to make sense? For years, I’ve been reading articles describing the national housing market as “weird,” articles with titles like “Weirdest Housing Market in Recent History,” “Something Weird is Happening in the Housing Market,” and “Price Inversion in the Housing Market is Just Weird.” To be honest, I may have even written an article like this, so I’m calling myself out here, too.
I know we all need attention-getting headlines, so there’s a certain hyperbole that’s necessary to get clicks, and I certainly participate in that. However, I’ve become so numb to hearing how weird everything is that I decided to search for how the real estate market has been described in media over the past forty years. To my complete lack of surprise, I found countless articles with titles like “Madness in the Housing Market” from 1988, an article from the Federal Reserve Bank of Boston about how “The 1980s and 1990s have been turbulent times in the U.S. market for single-family homes,” an article from 2000 about how the 1990s housing market was the “worst… since the Great Depression,” and I won’t even get into all the articles about the dot.com crash of the late 1990s or the housing market crash of 2008 that brought the whole economy down with it.
I guess my question is… if the housing market has always been in and out of some sort of weird disaster, what exactly is our expectation for how it’s supposed to behave, and do we need to change that expectation?
To be clear, the current housing market is in fact truly unique… and the housing market of the 1990s was also unique, and the 1980s was also completely different from what came before. It’s important to write about how the current era is totally different from the one that came before; that’s part of good analysis. However, when everyone describes the current housing market as totally insane, there’s an implicit assumption that the housing market has mostly made sense until just now.
Two things can be true at the same time: the present market can be truly unprecedented, and all past markets can also have been truly unprecedented. I don’t think it’s wrong to write about how truly unprecedented things are, but I think a lot of people read articles about how unusual things are right now and unknowingly assume that things used to make sense in a way that they never actually did. 
This misimpression isn’t necessarily harmful until it influences how you plan for the future. If your car is always reliable, but suddenly breaks down, you’ll approach that very differently from a car that is always breaking down, and just broke down in a whole new way. If you’re buying your first home, and have been reading about how unbelievably weird and strange the real estate market is, you might reasonably assume you should wait until things make sense like they “always used to.” However, if you’re aware that the real estate market is rarely functioning in a way that makes total sense, you’ll make more informed and realistic choices about when to buy or sell.
The subconscious assumption that things have always worked well until just now can add panic and irrationality to your decision making. A fascinating example of how fear can cause or deepen chaos is how the Fed handled the mortgage market crash of 2008. In the years leading up to the crash, there was widespread fear that rising home prices were a massive speculative bubble. It was thought that this speculative bubble was causing extreme overbuilding of houses, which ultimately would cause demand to crash due to oversupply. Thus, in the years leading up to the crash, the Fed aggressively raised mortgage rates from 2004 to mid-2006, and kept rates at their highest through 2007. The goal was to cool off a housing market that was feared to be far too hot. Unfortunately, this sustained cooling attempt worked way, way too well. Builders dramatically slowed building, buyers slowed buying, and this all coincided with a slowing job market. This caused the mortgage market to melt down, resulting in a financial crash that brought seemingly everything down with it.
The narrative for years leading up to 2008 was that home prices were so inflated that they would cause a massive crash, so this price inflation had to be counteracted aggressively to bring prices down to a reasonable level. However, recent studies have pointed out that housing prices quickly rebounded after the crash of 2008, and went on to skyrocket even higher in the following years. Almost 15 years after the crash, NPR wrote an article called “Home Prices are Now Higher than the Peak of the 2000s Housing Bubble: What Gives?” Many other sources have pointed out that, if the 2008 crash was caused by a housing bubble, prices shouldn’t have rebounded as quickly as they did, and definitely shouldn’t have soared far higher in the decades after.
An article from 2021 in Full Stack Economics by Timothy Lee argues that the problem with the housing market pre-2006 wasn’t an overbuilding of houses, but rather a shortage of them. His argument is based on research by Kevin Erdmann at the Mercatus Center at George Mason University. Erdmann argues that before 2008, the Fed responded to inflation panic by raising rates rapidly and keeping them high for way too long in response to what might have been a smaller downturn in home valuations in limited markets. As a result, what could have been a limited, industry-specific downturn in home prices instead caused the world’s economy to go up in flames.
This view is shared by George Schubert, who got his PhD in economics studying the housing crash from Harvard University, and now teaches economics at UCLA. He agrees that a housing bubble existed in some markets, like Los Angeles, but this was much, much smaller than it was made out to be and was confined to certain areas of the country. Schubert points out that Los Angeles real estate did “relatively well” during the Great Recession, and then skyrocketed afterwards. However, areas that didn’t have much of a bubble in home prices, like Atlanta, experienced massive home price declines. Schubert argues that this shows the housing crash resulted from “broader macroeconomic factors more than an oversupply of homes in any particular area of the country.”
If this is correct, a primary reason the housing bubble caused so much damage was the fear that it would cause so much damage; this bubble was not really outside the norm for rises and downturns in home prices. Though national home prices recovered rapidly after the housing crisis and have continued climbing, we’re still experiencing the aftershocks of the 2008 crash. As Timothy Lee puts it, “we’re still living with the consequences of misdiagnosing the housing boom as a speculative bubble. After the crash, housing construction fell to its lowest level in decades and remained depressed for several years. That under-production contributed to the housing shortages that now plague much of the country.”
It’s easy to forget that economics does not predict the future; it’s much better at exploring what happened in the past. To be fair, we’re still going to be learning about what caused the crash of 2008 for years to come, and I don’t think we have all the answers yet. However, the rapid and continuing rebound of home prices over decades suggests the Fed’s fears were misplaced.
I don’t mean to imply that I would have done better than Fed Chairman Ben Bernanke in handling this crisis, and of course hindsight is 20/20. However, it does appear that Bernanke responded to widespread claims that something uniquely terrible was about to happen in the housing market and let these misplaced fears take over; thus, a smaller price downturn was feared to be something horrifying and unprecedented, and these fears became a self-fulfilling prophecy.
Every time I see an article about how the current housing market is weird, strange, and terrible in some way, I wonder what this mysterious, glorious time of past normalcy was, and how unbelievably long it must have been to make all of the last 40 years seem utterly weird by comparison. We may need to change our view of what “normal” means in this context to prevent irrational panic from taking over. It’s always true that the present moment is unprecedented, but if you forget that every past moment was also unprecedented in its time, you can easily lose perspective.
https://www.nytimes.com/1992/05/24/nyregion/realtors-say-the-90-s-mood-is-sober.html
https://www.dmagazine.com/publications/d-magazine/1988/may/madness-in-the-housing-market/
https://www.latimes.com/archives/la-xpm-1991-05-25-mn-1998-story.html
https://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/1994/pdf/wp94-6.pdf
https://www.latimes.com/archives/la-xpm-2000-jan-23-re-56724-story.html
https://jacobin.com/2026/01/housing-values-us-property-taxes
https://www.marketplace.org/story/2025/09/30/price-inversion-in-the-housing-market-is-just-weird
https://www.theringer.com/2024/07/12/national-affairs/weirdest-housing-market-in-recent-history-rates-affordability
https://www.fullstackeconomics.com/p/the-2000s-housing-bubble-was-greatly-exaggerated
https://www.npr.org/sections/money/2021/08/17/1028083046/home-prices-are-now-higher-than-the-peak-of-the-2000s-housing-bubble-what-gives
Did Home Prices Ever Make Sense?
