U.S. Housing Market in 1981

1981 was the deepest housing recession of the post-war era. The 30-year fixed mortgage averaged 16.63% — the highest annual reading in the entire Freddie Mac PMMS history — and new-home sales collapsed to 436K, less than half their 1978 level.

Paul Volcker had taken the Fed chair in August 1979 with a single mandate: break double-digit inflation. By 1981 the federal funds rate had been pushed to 19%, which translated into mortgage rates that effectively shut down the housing market. Existing sales fell to 2.42M (down 39% from 1978). The pain was concentrated in two cohorts: first-time buyers priced out at any income, and builders carrying inventory financed at variable rates. The Volcker squeeze worked — inflation fell from 13.5% in 1980 to 3.2% by 1983 — but the housing recovery would take until 1985 to show up in the sales data.

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