2023 Housing market is more like the 1980s, not 2008: BofA economists

Bank of America (BAC) economists say that today's housing market is reminding them more of the 1980s, not what the U.S. saw in the 2008 financial crisis. The similarities the economists point to include high inflation and high interest rates. However, there is one key difference between the market of today and the market of 40 years ago. Yahoo Finance's Dani Romero explains what it is in the video above.

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Video Transcript

AKIKO FUJITA: Bank of America economists are nixing concerns about a housing crash like the one experienced in 2008. Instead, they say the market is more reminiscent of what played out four decades ago. Let's bring in Dani Romero with more on the latest warning coming out of B of A. Danny.

DANI ROMERO: Akiko, Bank of America warned last week that their economists are feeling some type of eerie deja vu feeling but not from the 2008 housing market, instead, from the 1980s. Bank of America economists say that there are a few key similarities.

Back in the 1980s, inflation was running high. CPI had hit 14.8% on an annual basis, leading to those years in the 1980s. And as a response, the Federal Reserve raised interest rates, which consequently caused mortgage rates to hover between 9% and 18% during that time frame.

Also, it was a prime time for baby boomers to start purchasing some homes. Does that sound a little bit somewhat similar to what's going on now? And if we fast forward to today, inflation hit its highest level June of 2022. And the Federal Reserve recognized that inflation was a problem, so they increased interest rates. And consequently, mortgage rates have nearly doubled.

Mortgage rates are now hovering over that 7%, hindering purchasing power for demand millennials right now. And there are still some similarities. Home prices have surged. Demand has fallen. Sales of existing homes has tanked. But the biggest difference between now and then is leverage.

Mortgage debt to disposable income hit 65% in the second quarter of this year compared to 45% in the 1980s. That's not something to really worry about, Bank of America economists have said, because household balance sheets are still really, really strong. And they're in very good shape.

But looking ahead, Bank of America expects limited housing, high home prices, and labor shortages. And also they still say that affordability will remain the biggest challenge looking ahead. And they even said, wrapping up, that their-- there is potential turbulence looking ahead, Akiko.

AKIKO FUJITA: Yeah, no relief on the horizon at least for prospective buyers. Dani Romero, thanks so much for that.