Comparing Today's Housing Crisis With the 1930s

Home prices have fallen and construction stalled, but the Great Depression was twice as bad.

Worried depositors at a troubled New York bank in 1929.

Worried depositors at a troubled New York bank in 1929.

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It's been called the worst housing slump since the Great Depression. But is the current downturn really anywhere near as bad?

As old photos of bread lines and Dust Bowl migrants clearly attest, the economic downturn of the 1930s was—and still is—unprecedented. While a far smaller percentage of Americans actually owned their homes back then, millions nonetheless lost both their jobs and the roofs over their heads.

Not so wonderful. Hard numbers on exactly how far home prices fell nationwide aren't known. (Government records go back only to the 1950s, and even then they're a bit sketchy.) Yet the government has kept statistics on the number of new homes built since the 1920s. At its peak in 1925, the roaring economy—the same one that helped George Bailey put scores of poor families into new subdivisions in the movie It's a Wonderful Life—produced about 900,000 new homes a year. By 1933, around the time Old Man Potter tried to get his hands on Bailey's cash-strapped Building & Loan in Bedford Falls, that number had fallen to about 100,000 new homes, a 90 percent drop.

That's about twice the size of the percentage decline in home building seen so far in the current downturn. And although some economists still expect things to get worse, "I certainly don't think we're in for another Great Depression," says economist Edward Leamer, whose UCLA Anderson Forecast has been predicting a real-estate swoon for the past two years.

That, of course, doesn't mean he thinks things won't get as ugly as they did, say, in Los Angeles during the early 1990s. After a real-estate boom that nearly doubled home prices between 1985 and 1989, sales volume began to slump as big layoffs in the aircraft and defense industries crippled the local economy. The decline—about equal to the sales falloff in the current downturn—took about three years to hit bottom in 1991. Only then did prices, too, begin to fall. By the time the housing market stabilized five years later, home prices had fallen by about 27 percent in nominal terms and by 45 percent after accounting for inflation.

Of course, what's different this time around is that the downturn isn't just playing out in Los Angeles but is hitting almost every major metro area. Yet perhaps the greatest contrast with past housing downturns is that this one has come while jobs are plentiful. No housing bust in memory has come without corresponding job losses. This time, "there's a disconnect," Leamer says. "No one I know thought that we'd have two years of a housing correction without an economic recession."