What I’m thinking about: We’re navigating the most hostile buyer environment in modern US history, and almost nobody (including me) is framing it correctly.
(Editor’s note: I don’t think I’ve ever gone back and adjusted the copy more on ‘final drafts’ than this article. This topic is COMPLEX, with a ton of nuance. My goal is to help keep your eyes on the fundamentals that matter most.)
Last week I walked through our “cockroach mode” posture and the macro fog we’re all operating in. Today I’m going to go deeper on why this market feels so uniquely brutal, because I studied every major US real estate down cycle going back to the 1870s, and what I found genuinely surprised me.
(To no surprise, I used Claude Cowork to help compile and cross-reference the underlying data from NAR, FHFA, Case-Shiller, the Fed, and Census Bureau records. Over 150 years of housing history distilled into something actually usable.)
2022 – Present Day
Most people calling this a “buyer’s market” (*raises hand*) don’t realize there’s an actual textbook threshold. Greater than 7 months of home inventory. As of April 2025, NAR reported existing home months’ supply at 4.4 months, and by January 2026 it actually dropped to 3.7 months. Not even close to that 7-month line.
(I had no idea this definition existed. Nobody I’ve spoken to in the industry has mentioned it either, which tells you something.)
Here’s what makes it more confusing though: New home months’ supply (builder inventory) hit 9.7 months as of Jan 2026, well past that 7-month threshold, and the highest new-build inventory since the GFC. Keep in mind new-builds are a smaller pool…roughly 476K new units for sale versus 1.2M existing homes, and only about 128K of those new builds are actually completed and ready to occupy. Existing homes are still the elephant in the room, and by that measure, NAR’s chief economist was still calling it a “mild seller’s market” as recently as April 2025.
(This massive divergence between new-build and existing inventory has not happened in at least the last 40 years FYI. The indication is that existing home inventory will trend toward new-builds, as builders are forced to cut price to move homes, deflating the market, and there’s a higher risk of more existing home sellers feeling financial distress due to the ongoing reduction in the lock-in effect.)
The reason it feels like a buyer’s market (nationally…but remember, real estate is hyper local, do your own research) is simple. The few people who can actually buy have leverage…because there are almost no other qualified buyers competing with them. Existing home sales hit 3.91M annualized in January 2026 (30 year low). Historical norm is around 5.2M. We’ve been well below that for four consecutive years (while the population continues to grow).
Median home price, still above $400K. Real prices (inflation-adjusted) finally started declining from June 2025 onward, first time in a decade (this is KEY for a potential exit path from this cycle). Mortgage rates rocketed from 2.7% to the 6-7% range in one of the fastest increases ever recorded. And 58% of Fannie Mae single-family loans still carry sub-4% rates…millions of homeowners locked in place with no incentive to sell (however, more home owners carry 6+% rates vs sub-3% rates now, so the tide is turning).
Four years of subnormal transaction volume with no meaningful price correction. That combination has zero clean historical precedent.
This IS arguably the worst market for buyers to actually purchase anything in modern history. And that distinction matters enormously for how you operate right now.
What 150 Years of Data Actually Reveals
In every previous down cycle, at least one of three variables (prices, rates, or inventory) eventually broke in the buyer’s favor that led to healthier market. Usually one, sometimes two. (Again, this is why the current situation is unprecedented…all three variables are hostile to buyers simultaneously. Price is certainly the primary enemy of buyers right now though.)
The GFC (2007-2012): 26% national price decline, some metros 50% plus. Months of inventory peaked at 8.7 months (highest ever in modern data) and stayed above 7 months for roughly three years. About 4 million foreclosures flooded the market with supply. Brutal for the economy, but paradoxically better for positioned buyers than today. If you had cash, you could scoop up assets, reliably, at 30-50% discounts…certainly not the case right now.
The early 1980s: The closest historical analog to our current situation. Mortgage rates hit 18% in late 1981 (triple current levels), sales volume collapsed 50% over four years, and prices stayed stubbornly elevated.
Here’s the part that really hit me. It took until 1996 (~18 year of recovery) for existing home sales to exceed the 1978 peak. And the population was growing that entire time.
The escape valve was assumable mortgages, where buyers could take over a seller’s existing below-market loan. Congress killed that mechanism in 1982 at the banking industry’s request. FHA and VA loans technically still allow assumptions, but servicers take 4-6 months to process them and most deals just fall apart.
(So the 1980s had a pressure release valve we simply don’t have. And the home price-to-income ratios are actually MORE stretched now than they were 45 years ago. Worth sitting with.)
The Protection Paradox
While there are anecdotal housing downturns in the 1870s and 1890s, the Great Depression is really where reliable housing data begins.
And nearly every structural protection preventing a housing collapse today was built directly in response to that crisis. FHA, Fannie Mae, FDIC, the 30-year fixed-rate mortgage…all New Deal inventions or their descendants. Before the Depression, mortgages were 5-10 year interest-only terms with balloon payments. Down payments were 50% or more. Notably, homeownership rate was only around 44% (compared to ~66% today).
These protections work. The banking situation in 2008 was arguably worse than the Depression, but FDIC deposit insurance prevented mass bank runs.
The tension nobody discusses enough: the safety net preventing catastrophe also prevents correction. Borrowers aren’t forced to sell. Lenders aren’t forced to foreclose. The backstop keeps the system stable…and also keeps it stuck.
(Borrowers also have a significantly higher equity cushion than in any previous downturn. The average homeowner is sitting on roughly $295,000 in equity, homes are only about 45% leveraged on average, and just 3% of mortgaged properties are seriously underwater. Compare that to the GFC when negative equity was everywhere. So even though more sellers COULD absorb a price correction without going under…they don’t WANT to. And who would?)
Which means this grinding, frozen market could persist for significantly longer (it already has) than most operators are planning for (to the extent that most operators actually have a well-thought-out plan).
Planning for the Long Haul (With a Reason to Be Optimistic)
I don’t want to overdramatize this (we’re nowhere near Depression territory…1,000+ foreclosures per day, half of all mortgages in default, that was a different universe). But operators need to internalize that planning for a quick recovery is probably not conservative enough. The 1980s analog suggests years. The structural protections, and equity-rich owners, almost certainly extend this cycle’s timeline.
Truly, does anyone reading this believe that a turnaround is likely within the next few months, or even by the end of this year? This question is not rhetorical, I’m all ears.
And yet…I’m genuinely optimistic about the medium and long term.
One variable exists now that didn’t exist in any prior cycle: AI-driven productivity. If those gains meaningfully boost economic output, with greater amplitude and sooner than any of us realize…that’s a path to closing the affordability gap without requiring a price crash. It’s an escape valve the 1980s never had, the GFC never had, and certainly the Depression never had.
Again, recent data has indicated that real home prices have been falling for almost a year while wage growth has still been outpacing inflation, beginning to narrow the affordability gap…that’s a step in the right direction.
The cheat sheet for the best investment firms in the world is to figure out a way to not lose money during a down cycle.
The operators sharpening their underwriting, cutting overhead intelligently, and building AI-first workflows right now will be extremely well positioned when this market eventually turns.
More time is the investor’s greatest ally. Never stop moving forward.
=====
Experienced operator with routine deal flow looking for a capital partner who still deploys with conviction, in arguably the worst market to buy in modern US history?
We write checks from $50K+. We close 100% of deals we commit to. And we bring national underwriting experience built across the best and worst markets this country has produced.
