Did you know that most housing market predictions often miss the mark? This surprising reality challenges common beliefs about real estate trends.
In the video above and the narrative below, we examine the 2008 crash through a different lens to better understand today’s market. Will 2025 bring a housing crash? A housing correction? To find out, we’ll explore research by Kevin Erdmann, a housing market expert who uncovered eye-opening truths about what happened in 2008.
We’ll bust myths about housing crashes versus corrections and show you why many predictions for 2025 might be off base. I’ll explain how two major cities had completely different outcomes after 2008, giving you crucial insights for real estate decisions. Stick around – what I’m about to share could change how you view the housing market forever.
The Housing Supply Collapse: What We Got Wrong
Let’s dive into the housing supply collapse from 2006 to 2011. Did you know that housing starts plummeted by over 70% during this period? That’s a massive drop that affected the entire country.
You might think you’ve got this all figured out, but this story has a twist. While we saw this dramatic decline in new homes being built, some supply indicators suggested things were improving. Crazy, right? It all comes down to how we measure supply versus what’s really happening in the market.
The Great Recession hit hard and didn’t just impact housing construction. It threw the whole economy for a loop. Incomes took a nosedive, and people’s moving patterns changed big time. Fewer folks could afford homes and those who could often stayed put.
This created a weird situation where it looked like we had too many homes compared to demand. But here’s the kicker – it was just a statistical illusion. Prices were falling because demand was collapsing even faster than supply. Existing homeowners were putting their houses on the market, adding to the inventory, but there weren’t enough buyers.
Think of it like this: Imagine a shop that typically sells 100 items each day but suddenly sells only 50. The owners might think they have too many products, but, in reality, new competitors opened around them, drawing away customers. The same thing happened in housing when homeowners who lost their jobs walked away from their properties, flooding the market with abandoned homes.
This matters because it hid a huge problem we’re still dealing with today – we’re not building enough houses. While everyone was focused on the apparent oversupply, we were actually underbuilding big time. This lack of new homes has added a lasting premium to housing prices. It’s like we’ve been playing catch-up ever since, and it’s making homes more expensive for everyone.
Kevin Erdmann’s research really shines a light on this. He points out that the collapse in housing production and these misleading metrics created the perfect storm. The real problem of not enough housing supply was hidden by the demand collapse, and it’s still messing with the market today.
Keep Up With New Trends In Tallahassee!
Get The Tallahassee Real Estate Newsletter
Don't be the one that doesn't know what's going on when you sell a home or buy a home in Tallahassee.
Other buyers, sellers, lenders, and real estate agents have this critical information, and now you can too!
Get immediate access to our most recent newsletter.
Let more than 30 years of experience work for you with charts, graphs, and analysis of the Tallahassee housing market.
Phoenix: A Cautionary Tale of Boom and Bust
Picture Phoenix in the early 2000s. The housing market was on fire, with home prices rocketing up 60% in just a few years. Everyone thought they were sitting on a gold mine. But from 2006 to 2011, something went terribly wrong. Home prices plummeted by over 70%. That’s a full-blown catastrophe.
Here’s where it gets weird. During this same period, when home prices were in freefall, incomes in Phoenix actually grew by 20%. Why did the housing market crash so hard if people were making more money?
The answer lies in a perfect storm of factors. Phoenix had become heavily dependent on migration, especially from places like Los Angeles. When the Great Recession hit, and migration slowed, it pulled the rug out from under the Phoenix housing market.
But that’s not the whole story. The real kicker came after 2006, when there was a massive crackdown on mortgage lending. This shift in mortgage policy was like a pendulum swinging from one extreme to another. Before 2006, you could practically get a loan with a smile and a handshake. After 2006? Good luck even getting your foot in the door.
This drastic tightening of credit did a number on housing affordability. Even though incomes were growing, it didn’t matter if people couldn’t get loans to buy homes. The market couldn’t sustain itself without accessible financing, and that’s a big reason why the crash in Phoenix was so much worse than it needed to be.
What we’re seeing here is a cautionary tale about how policy decisions can amplify market trends, sometimes with disastrous results. The steep price decline in Phoenix wasn’t just about market forces doing their thing. It was supercharged by an overcorrection in lending standards that went too far in the opposite direction.
This Phoenix story highlights a critical point: when it comes to housing markets, balance is key. Swinging from super-loose lending to ultra-tight restrictions doesn’t stabilize markets – it creates chaos. And unfortunately, it’s often the average homebuyer who pays the price.
But not every city suffered the same fate as Phoenix. Some markets managed to weather the storm much better. Let’s look at a city that faced similar challenges but came out with very different results.
Housing Crash or Boom? Here’s What’s Coming in 2025
BIGGEST Housing Market Myth EXPOSED by New Foreclosure Data
Austin: Steady Growth in Turbulent Times
Unlike Phoenix’s volatile real estate market, Austin’s housing story during the Great Recession challenges common assumptions about market behavior in economic downturns. From 2002 to 2011, Austin’s home prices rose by a modest 10% before stabilizing, defying the nationwide trend of plummeting values.
What set Austin apart? First, its economy didn’t just survive – it thrived. The city saw strong income growth of 36% during this period, providing a solid foundation for the housing market. This economic strength kept demand steady while other areas experienced sharp declines.
Additionally, Austin’s population growth remained robust. This influx of new residents helped maintain a healthy housing demand, preventing the freefall seen in other markets.
Interestingly, Austin avoided overbuilding, a common pitfall in many cities during boom years. When the recession hit, Austin didn’t face the glut of empty houses that dragged down prices elsewhere.
Fast forward to the COVID-19 era, and Austin’s resilience shines again. The city saw a significant 60% price surge during this period. But here’s where Austin’s story gets even more interesting: much of this appreciation has already corrected itself.
Why? That income growth we mentioned earlier is still going strong. The 36% income growth during this recent period has helped stabilize the market, allowing it to absorb the price increases without leading to a crash.
Austin’s experience offers valuable lessons about market resilience. The city’s balanced housing production approach, steady income, and population growth have created a more stable market. It’s like a well-tuned engine, with all components working together to maintain smooth operation.
This doesn’t mean Austin is immune to market fluctuations, but it does suggest that a diverse economy, controlled development, and population growth can help buffer against major economic shocks. As we continue to analyze housing markets, Austin’s story reminds us that local factors can significantly impact a city’s ability to weather economic storms.
Fannie Mae Report: It's The TRUTH About The Housing Market
Real Estate Meltdown: Starter Homes at $1M in 233 Cities
Is the Housing Market Crashing? | Redfin April 2025 Update
Is This The CALM Before The CRASH? Volatility Rocks Housing
Warning Signs For Home Buyers And Sellers
The Big Picture: Income Growth and Supply Shortages
The housing crisis isn’t isolated to a few cities – it’s a nationwide issue affecting markets from Phoenix to Austin and beyond. Since 2002, we’ve seen a perfect storm of national problems reshaping local real estate landscapes everywhere.
Income growth fell behind historical trends by 10-20% from 2002 to 2011, dampening housing demand and worsening the recession’s effects. However, the more significant issue is chronic underbuilding. We haven’t constructed enough homes to meet demand for years, adding a lasting premium to housing prices across all market segments.
This underbuilding has particularly affected the starter home market. In many areas, the inventory of affordable entry-level houses has shrunk dramatically, leaving first-time buyers facing fierce competition and inflated prices.
Increasing the housing supply isn’t easy. Restrictive zoning laws, rising construction costs, and labor shortages all contribute to the problem. These barriers make it challenging for builders to construct affordable homes in desirable areas.
The gap between income growth and home prices continues to widen, creating a full-blown affordability crisis. Even as incomes have improved since 2018, they’re not keeping pace with skyrocketing housing costs.
This crisis has deep roots in long-term issues like income stagnation and persistent underbuilding. These structural challenges need urgent attention from policymakers and industry leaders.
Housing markets don’t exist in isolation. What happens in one city can impact others across the country. That’s why we see such different outcomes in places like Phoenix and Austin, despite both being subject to these national trends.
For homebuyers, these challenges are daunting. The premium on housing prices isn’t going away soon, and incomes aren’t catching up fast enough. However, understanding these trends is crucial for navigating this complex market.
As we look to the future, we must ask: How can we address these systemic issues to create a more balanced and affordable housing market for all Americans? The answer may shape the real estate landscape for generations to come.
The Best Time To Lower The Price In A Home Sale
Want to Sell Your Home Quickly and Profitably? Watch This Now
Time-Lapse Tree Removal!
What Does A Realtor Earn?
How To Sell Your House When You Are In A Hurry
Do's And Don'ts During The Home Loan Process
7 Tips On Buying A Home With A Pool
How much house can you actually afford (By Income)?
What Sellers Need To Know About Robo-Offers In Real Estate
The Need For More Homes
Our housing crisis demands immediate action – we must build more homes, PERIOD. Cities like Austin have shown us the way forward by encouraging steady construction and balanced growth, creating a more stable housing market. We must replicate this nationwide or face dire consequences. Without reform and increased construction, our affordability crisis will worsen, potentially leading to economic instability across the U.S.
The road ahead is challenging, requiring profound policy changes and long-term planning. But the data is clear – we can’t afford inaction.
Want to understand just how bad the home affordability crisis has become? My latest video dives into a shocking USC study that reveals why today’s housing market is the worst in American history. You won’t believe how much things have changed since your grandparents’ era.
