Looking Back at the Savings and Loan Crisis to Predict Future Changes in Home Values

Looking Back at the Savings and Loan Crisis to Predict Future Changes in Home Values

In light of the multiple large regional banks recent failures and sustained pressure on the banking industry, many are worried about buying a home in fear that the turmoil could cause home prices to fall.


This is understandable – most people have their vision clouded by the memory of Great Recession that was caused by the housing market meltdown. But in reality, today’s economic uncertainty is much more reminiscent of a financial disaster that began two decades before.


The effects that have spread through the banking system after the recent turmoil are very similar to the Savings and Loan (S&L) Crisis of the 1980s and early 1990s. Both then and now, the Federal Reserve was rapidly hiking interest rates to fight inflation, but doing so at the cost of devaluing interest rate-sensitive assets, like the U.S Treasuries and mortgage-backed securities that make up a large portion of many banks’ balance sheets.


The Savings and Loan Crisis: A Brief Overview

The S&L Crisis was a major financial event in the United States that unfolded between 1986 and 1995. This slow-moving crisis was characterized by the collapse of many savings and loan associations (S&Ls), which were financial institutions that primarily focused on mortgage lending.


More than one thousand S&Ls failed during this period, it was unquestionably the largest banking crisis since the Great Depression. The crisis was triggered by a combination of factors, including deregulation, poor lending practices, and an economic downturn.


Case-Shiller Home Price Index: The Gold Standard of Home Values

The Case-Shiller Home Price Index (CSHPI) is a widely recognized measure of home values in the United States. Created by economists Karl Case and Robert Shiller, the CSHPI is based on a methodology that tracks changes in the value of residential real estate by analyzing repeat sales of single-family homes.


By measuring home price fluctuations over time, the CSHPI provides valuable insights into the health and value of the housing market.


Impact of the Savings and Loan Crisis on National Home Values

During the S&L Crisis, the housing market experienced a slowing of appreciation that turned to minor deprecation in home values in 1990 and 1991.

The CSHPI can help us better understand the effects of the crisis on national home values:


1. Slowdown in Home Price Appreciation:

In the ten years leading up to the crisis (1976 to 1985), the CSHPI revealed that national home prices appreciated a cumulative 112%. Home prices were running very hot with three double-digit appreciation years in a row in 1977, 1978, and 1979.


In the ten years DURING the crisis (1986 to 1995) home prices nationwide appreciated a cumulative 40%. This slowdown can be attributed to several factors, including rising interest rates (which increased from roughly 9% to their peak of 18.63% in 1981), economic stagnation, and the fallout from the S&L failures.

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2. Rebound of Appreciation:

The CSHPI data also indicates that the housing market rebounded in the decade AFTER the S&L crisis (1996 to 2005) with cumulative appreciation of 124%. The appreciation rebound can be linked to several factors, including the resolution of the S&L Crisis, the easing of monetary policy, and a general improvement in economic conditions.


Below is a chart of national home appreciation going back to 1942. Out of the last 81 years, home values have been up 73 years (green boxes), down seven years (red boxes), and flat one year (white box). This long-term perspective teaches us two powerful lessons.


  1. Residential real estate has a 90%-win rate. This is better than just about any other asset class over a very long time horizon.
  2. Coming out of tumultuous economic times, like after the Great Depression, the S&L Crisis, and after the Great Recession, home prices rebound and do very well.
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The Bottom Line

As we watch the 2023 banking crisis unfold, nobody knows for sure how contagious it will be. But as the saying goes, “History doesn’t repeat…but it often rhymes.” 


With a significant housing shortage, lowering inflation and mortgage rates moving down, we don’t expect home prices nationally to decrease during the fallout. We expect low single-digit appreciation similar to the early 1990s.


According to the most recent batch of housing data, home prices are already moving higher (numbers below show increases compared to the previous month):




All of this goes to say, you should not be worried about buying a home in this market. If history tells us anything, it’s that housing does very well in times of economic turmoil – especially compared to other asset classes.


If you are ready to purchase a home but you have been waiting for prices to fall, now is the time to get moving. Remember, wealth is not created by timing the market – it’s created by time IN the market. The sooner you buy a home, the sooner you will start building equity and be one step closer to financial freedom.

Overcoming Housing Market Fears

By Luminate Marketing Team • 06 May, 2024
The recent headlines broadcasting mortgage rates surpassing the 7% mark have instilled a sense of apprehension among potential homebuyers. In a market perceived as increasingly unaffordable, it's easy to feel discouraged. However, with the right mortgage strategy, you can transform this challenging market into an opportunity.  Historical Perspective on Mortgage Rates While current rates hovering around 7% seem daunting, a historical review reveals a broader context. During the early 1980s, mortgage rates soared to 18% and even in more stable times, rates have frequently fluctuated above 10%. This historical perspective is vital because it demonstrates that while today’s rates are higher than in recent years, they remain within a historical long-term normal rate range.

Why Cash Buyers Dominate the 2024 Real Estate Market

By Luminate Marketing Team • 28 Apr, 2024
The 2024 real estate market is ROUGH. Losing to multiple offers, emotional frustration, and the stress from competing offers is discouraging to say the least. Notably 32% of home sales are being clinched by all-cash buyers, the strategic advantage of wielding cash has never been clearer. This resurgence in all-cash transactions underscores a market where immediacy and certainty reign supreme, especially as home prices continue their upward trajectory against a backdrop of scarce inventory. Within this context, it’s prudent to evaluate every option that can help you sell an existing home and get your offer accepted on a new home. Navigating the Alternatives iBuyers : These entities provide a quick, straightforward selling process for homeowners looking to bypass the traditional market. By making instant cash offers, iBuyers appeal to those seeking immediacy and convenience. However, this often comes at a cost, including service fees and potentially lower offer prices, as the iBuyer model is designed for speed over maximizing seller profits. Power Buyers : Power buyer programs cater to homeowners wishing to purchase their next home before selling their current one. They typically employ financial tools like bridge loans to facilitate this process, offering a solution to the timing mismatch between buying and selling. While this approach adds flexibility, it can also introduce complexity and additional costs into the transaction. But it's important to remember that not all of the innovative iBuyer and Power Buyer programs are the same. It's all about finding the right fit for your situation. Luminate's Unique Approach At Luminate Home Loans, we've carved out our own niche in the market. We offer a program that turns our clients into cash buyers. This isn't just a minor perk; it's a game-changer. Being a cash buyer makes your offer far more appealing to sellers, cutting through the delays that often come with loan approvals. Our approach is designed with you, the homeowner, in mind. We give you the immediate advantage of a cash offer, coupled with the flexibility to choose the best financing option for you down the line. It's about giving you control and confidence in your home-buying journey. If you're navigating the complexities of buying and selling homes, our program might just be the solution you've been searching for. We focus on ensuring our processes are straightforward, your personal information is secure, and the transition to your new home is as smooth as possible. With Luminate, you're not just moving houses. You're stepping into a well-thought-out system designed to get you into your dream home with ease and certainty. If this sounds like what you need, we're here to make it happen.

Understanding Economic Shifts: How Rising Fast Food Prices Intersect with the Housing Market

By Luminate Marketing Team • 21 Apr, 2024
Have you been noticing the prices of fast food and other products going up? Well, you're not alone. Across the country, families are feeling the financial pain of previously low-priced items suddenly costing double (or triple!) what they’re used to. For example, a lunch for two in California at a fast food chain can easily be $40 nowadays, which is a big jump for places that tout “cheap fast food.” But why exactly is this happening, and what does it have to do with you buying a home? Keep reading for more insights. Why Are Prices Going Up? Starting in April of 2024, the minimum wage for fast-food and healthcare facility employees in California was increased. As a result, their wages went from $16/hour to $20/hour in order to provide better wages and living conditions for these workers. This rise in minimum wage, while much needed for the economy, is happening all across the nation. And when businesses have to pay their employees more, they often raise their prices to cover the costs. Which, unfortunately, means the burger and fries you love might cost more now. What Does This Have to Do with Housing? In recent news, you may have heard of President Biden’s housing plan to help first-time homebuyers and to reduce housing costs. This plan would give money to first-time homebuyers and some families looking to sell their homes. But just like with the fast-food industry, the effects can vary. In some places like California, where not enough houses are available, making homes more affordable might not be enough. In other places, it might help a bit more. So, What's the Best Move for Homebuyers? If you're thinking about buying a home in the near future, it's good to know about these changes and plans. By staying informed and working with an expert lender, you can take advantage of any changes as soon as they happen. But even though extra money in the economy sounds great, it's important to look at the whole picture, like how many houses are available and how much they cost. If more homes become available and the costs of borrowing money for a home go down, this could be a better outcome for buyers vs money that is thrown into the economy. Conclusion Understanding these changes can help you make better, informed choices about your financial future. Whether you're saving up for a big purchase or just deciding where to grab lunch, let us help you save money where it counts! Reach out to us today so we can help you navigate your home-buying journey without having to skip out on the fries.
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