The 2008 housing market crash: prices, foreclosures and the fall

What happened in the 2008 housing market crash, in one view?

Prices peaked in 2006 and then declined for years. The Federal Reserve History essay reports that average US home prices fell by over a fifth nationally between the first quarter of 2007 and the second quarter of 2011. Households that bought near the peak often owed more than the home was worth, and the gap shaped every decision that followed: whether to keep paying, to sell at a loss, or to hand the keys back.

The crash had 3 visible stages: slowing sales in 2006 and 2007, rising defaults among weak loans, and forced sales that pushed prices down further. Each stage widened the next. The sections below measure each one, so you can see where the damage came from and how long it lasted.

How far did US home prices fall in the 2008 housing market crash?

Several measures agree on the scale. Wikipedia’s survey reports that average US prices were down over 20% from their mid-2006 peak by September 2008, and that home values fell 26% from June 2006 to November 2010. By early 2009 housing prices had fallen nearly 30% on average, measured on that survey’s figures.

Different indexes give different totals because they cover different regions and periods. The consistent finding is a decline of between a fifth and a quarter of the peak value across the country. Some regions fell more, and some fell less, which is why local data matters when you assess a specific market. A national average also hides differences in timing between regions.

How many foreclosures did the 2008 housing market crash cause?

Wikipedia reports that lenders began foreclosure proceedings on about 1.3 million properties in 2007, up 79% from 2006. The figure rose to 2.3 million in 2008, up 81%, and to 2.8 million in 2009, up 21%. The yearly rise shows how the problem deepened as more loans reset and more owners fell behind.

The EQOS Asia study counts 10 million foreclosures between 2007 and 2012 (EQOS Asia 2008 back-test, 2026). Foreclosure starts and completed foreclosures differ, and the totals depend on the period counted. Both series show the same pattern: a few years of rapid increase, then a long decline.

Why did falling prices cause more foreclosures in the 2008 crash?

Falling prices removed the way out. A borrower who could not pay had earlier sold the home or refinanced into a new loan. Once a home was worth less than the mortgage, neither route worked, and the lender took the property. Lenders then sold those homes, which added supply to a weak market.

Adjustable-rate loans sharpened the loop. Wikipedia reports that subprime adjustable-rate mortgages 90 or more days overdue or in foreclosure reached about 16% by October 2007, 21% by January 2008 and 25% by May 2008. Higher payments after the reset turned weak loans into failed ones within months.

How did the 2008 housing market crash hit lenders and the mortgage giants?

Lenders that specialised in weak loans failed first. New Century Financial, a leading subprime lender, filed for bankruptcy in April 2007, and large numbers of mortgage securities were downgraded soon after. The Fed notes that private-label securities funded most subprime mortgages, so investors absorbed the losses too.

By summer 2008 the stress reached Fannie Mae and Freddie Mac, which the federal government seized after large losses. These 2 firms stood behind a large share of US home loans, so their rescue protected the supply of mortgage credit while the crash continued.

When did the US housing market recover after the 2008 crash?

Prices stabilised and began rising around 2012, according to the Federal Reserve essay. The recession ended in June 2009, yet housing lagged the wider economy by about 3 years. Government support grew as private lending shrank: the share of new mortgages backed by the Federal Housing Administration rose from under 10% to over 40%.

Recovery took longer for households than for averages. Families that lost homes between 2007 and 2012 rebuilt credit and savings slowly, and a generation of buyers entered the market after the crash with tighter standards. Both effects shaped the market well beyond 2012.

Who bore the losses of the 2008 housing market crash?

Losses landed on 4 groups in turn. Households lost home equity first, because mortgage debt stood at 97% of GDP in 2006 while prices fell by over a fifth. Lenders came next, as defaults reduced the value of the loans they held and the cash they could lend onward to new buyers.

Investors in private-label mortgage securities took the third round of losses, since those securities funded most subprime mortgages. Taxpayers took the fourth: the government seized Fannie Mae and Freddie Mac, and the Federal Housing Administration share of new loans rose above 40%. The sequence shows how a local price fall became a public cost.

Which housing market crash signals can you track today?

4 public series give an early read on any housing market: the price-to-income ratio, the share of loans overdue by 90 days, foreclosure starts, and the share of loans made on weak standards. The 2008 crash showed each rising before prices fell. This page is general information, not investment advice.

You can score a market on these signals with the EQOS Asia Λ simulator, which returns a φ(S) estimate in 10 minutes. For the loans that started the defaults, read the sister page on NINJA loans and subprime lending.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile