We’ve Seen This Market Cycle Before Sort Of: What It Means for Santa Barbara

In the 1980s, mortgage rates and home prices soared after a major housing boom, and then sales dried up much like today’s housing market. The question now is: Will our recovery look similar too?

Two years ago, the U.S. housing market was in a “déjà vu” moment, showing striking similarities to the early 1980s, according to First American Chief Economist Mark Fleming.

And now? The market remains stuck in that decades-old cycle but early signs suggest it may soon move in a new direction.

Echoes of the Past

Between 1978 and 1982, a major demographic shift shaped the housing market. Baby boomers were in their prime homebuying years, driving a surge in demand. Home prices and inflation spiked, but as mortgage rates jumped to combat rising costs, home sales fell nearly 50% while prices continued to climb, creating a significant affordability gap.

Sound familiar? A similar pattern unfolded between 2021 and 2025, as another large demographic group millennials entered their peak homebuying years. The pandemic added a twist, pushing mortgage rates to historic lows and fueling a sales boom before inflation took hold.

But inflation arrived followed by a sharp rise in rates leading to a slowdown in sales and ongoing affordability challenges as home prices remained elevated.

A Slower Rebound This Time Around: How the 2025 Housing Market Differs from Past Recoveries

So what does that mean going forward? Will the coming years look like the mid-to-late ’80s, when home sales rose whenever mortgage rates dropped?

Probably not, says First American Chief Economist Mark Fleming. While today’s real estate market shares similarities with that of 40 years ago, mortgage rate behavior is different this time.

“History doesn’t repeat itself, but it often rhymes,” Fleming explained. “The rhyme this time will be different because we don’t expect rates to decline significantly in the coming years as they did in the mid-1980s.”

By 1982, the 30-year mortgage rate had begun its descent from an 18% peak in 1981, gradually falling below 10% by 1987. By contrast, the surge from under 3% in 2020 to nearly 8% in 2023 was sharp, but the return to historical norms around 6% to 8% is less dramatic. Today’s rates, hovering near 6.3%, aren’t expected to move much lower anytime soon.

“The mid-1980s will not be like the mid-2020s because that rebound was driven by falling mortgage rates,” Fleming said. “Now, the market will rebound more slowly not because of rate drops, but because life happens.”

He added, “The challenge today is how to grow a housing market driven by life events, not rate events and to do so in a way that keeps homeownership affordable for more buyers who can no longer rely on mortgage-rate-driven affordability gains.”

A steady increase in home sales ahead?

While home sales have remained relatively tepid this year, the pace is expected to pick up in the second half of the decade. In its forecast for 2026–2030, U.S. News & World Report predicts that existing home sales will gradually rise from around 4.55 million in 2026 to 4.9 million by 2030.

Factors that could slow this growth include limited suitable land, rising construction costs, and the potential impact of immigration-related labor shortages in the building industry.

However, slow and steady growth may actually be healthy for the housing market. The sharp rise in home sales during the mid-1980s didn’t end well. By 1989, the combination of the savings and loan crisis and a national economic recession led to a multi-year decline. Existing home sales dropped from roughly 3.75 million in the late ’80s to under 3 million in the early ’90s.

According to First American Chief Economist Mark Fleming, today’s market structure is far more resilient than in past cycles.

“Today’s market is characterized by loans made to high-quality borrowers, with relatively little subprime risk exposure,” Fleming explained. “Practically every mortgage is fixed-rate, and those that aren’t are traditional adjustable-rate products without payment shock features. Almost all homeowners have significant equity, providing a much stronger safety net than in previous downturns.”