1980, 2008, and 2022

Any financial news source today will talk about one primary theme: recession. And depending on who you ask, we are either currently in a recession, or trending towards one. But the reality is, not all recessions are created equal. Some are longer and more severe; some can crumble the world economy and others can be more of a market correction when looked at in the grand scheme. Two of the more severe recessions in recent history, were in the 1980s and of course 2008.

The early 1980s had two related recessions, one in 1980 and another in 1981-1982. To put in the simplest terms possible,?extreme highs of inflation rates led to rising rates from the fed, dropping the GDP 2% and bringing unemployment up to 7.5% throughout 1980. Sound at all familiar? Extreme inflation damaging the global economy is what we’ve been seeing this summer. While the 1981-82 had some differing factors, the key points were still steep inflation, rising rates, and rising unemployment, so for simplicity’s sake we will discuss the two together.

Almost every?inflation headline this summer has detailed how each measure is at a “40-Year High”. That is because of the massive inflationary jumps of the late 70s and early 80s.When looking at the monthly change in CPI, that period experienced much steeper increases, compared to this summer. Standard?CPI measures reached a peak of 9.1% in June of 2022, but comparing to 1981 you can find peaks of 14.3%.?

The recession of 2008, also known as the Great Recession, was unique. As most people know, the housing market was built on a total miscalculation of terrible loans given to default ready customers, who were then simply encouraged to refinance, further extending the issue. These loans were then traded on financial markets, leading to an incredible dependency on terrible loans across the world economy.

The first point is that you can’t really compare our current housing market to the most recent housing crisis of 2008, because one was based on complete failure of how the market operated. On the other hand,?the 1980s was spurred by inflation, similarly had a gap between two recessions (2020 and 2022) and had international factors. Put simply, it is far more beneficial to look at real estate and financial trends from the 80s instead of post-2008. During the 80s inflation was high, rates went up, and real estate markets struggled as they went back towards true value, they did not crash globally.?The Case-Schiller Index?is a public indicator of single-family home values around the country. Past performance is not indicative of future results, but it's important to know our own history. When looking at the graph below, you can see the trends within the housing market after 2008 and 1980. In the 1980s, at times where the GDP was tanking, and inflation was through the roof, values stayed relatively steady and flattened off, and that is the period we need to examine - not 2008.

We like to use housing affordability indexes to compare housing data from two different time periods. The 1980 and 2022 recessions were fueled by inflation and reactionary rate hikes. This led to significant drops in GDP, and housing affordability can then change rapidly.?Housing is over 60% more affordable in the summer of 2022 than it was in 1982, which makes sense considering inflation was about 60% higher in the recession of the 80s.

The overarching point here is that first, we can’t compare the current market to the recession of 2008. Furthermore, we can loosely compare it to the 1980s, considering inflation rates highly influence the market. While they can’t be considered the same, with time and likely a few more rate hikes, the market will likely come down to Earth.

What is happening?

• Inflation is driving the US economy into a recession?
• Raising rates to combat inflation is slowing down the movement of money

What are we doing?

• Closely monitoring spending habits and trends similar to other periods
• Understanding that the current market is not based on illegitimate loan structures.?
• Focusing on specific geographic areas with good demographics, growth, and economics.?