I did a little research this weekend into the major housing downturn of the 1980's. Specifically, I looked at old copies of the Billings Gazette to see what writers and Realtors were saying about real estate at the time.

Comparing the 80's market to today's is tricky because of the oil bust, but that's not my point today. I just want to look at how things went down last time and what people in the industry were saying about it.

First I want to present a new graph. This shows inflation adjusted house prices in Billings. I used 1986 prices as the baseline, so everything is expressed as a relation to the 1986 index. A value of 100 represents inflation-adjusted 1986 prices. (Click for higher resolution version)



Now, on to my research. For all the housing stories I could find in old Gazette editions, I lifted the headlines or a choice quote about the housing market. I also tried to find a quote or two from a Realtor talking about the state of the market or their predictions for future house prices.

Finally, I matched up the dates of these news stories with the correct place on the graph, and the result can be viewed below. Gazette headlines or story snippets are shown in white. Realtor quotes are in red. I apologize for the cluttered graph, but it's very interesting to see what the industry was saying when prices were crashing:



If history is any indication, we can conclude that media reports lag significantly and are not necessarily a good indicator of actual market conditions. Had you relied on only the newspaper stories, you would have concluded that 1985 was a great time to buy. In reality, it would have been one of the worst times in recent memory to buy a house.

The other thing to take away from this graph is that Realtors were very poor at calling the bottom of the last correction. It remains to be seen whether recent Realtor quotes will look as ridiculous in hindsight as the 80's ones do today.