The Long Reach Of The Last Crash

A decade removed from the housing bust, we’re still feeling its effects, only now in different ways.

- Peter Coy

If you’re looking for good news in the housing market, there’s this: Prices aren’t likely to crash the way they did in the historic bust of 2006-09. During the last boom, buyers, lenders, and builders were swept up in speculation, and prices soared even as a flood of new homes came onto the market. That unsustainable combination doesn’t exist today. “A crash is just not something that I see in the cards, even at the local level,” says Greg McBride, chief financial analyst for Bankrate.com.

Rather than heading for another bust, we’re still feeling the effects of the last one. Aggressive homebuilders were wiped out, and the survivors are cautious about working on spec. Smaller builders that rely on borrowing can’t supercharge construction, even if they want to, because their bankers are afraid of making loans. Even after a gradual rebound from its nadir in early 2009, the rate of starts on erecting single-family residences remains below the level of the early 1960s, when the U.S. population was less than 60 percent of what it is today.

Instead of an oversupply of homes, there aren’t enough being built. That’s propping up prices at levels that exclude many Americans from ownership. “We are underhoused,” says Aaron Terrazas, a senior economist for Zillow Group Inc.