This first slide, I get asked a lot of questions when they find out what I've written about housing. And the first slide is if you're a home buyer, home seller, existing home owner, I almost always get the same question: price. What's going to happen with prices? Sorry. They told me to hold the mike closer and I'm going to try. So I'm going to talk a little bit about prices, where we're at and what's likely to happen.
Then there's a whole other group of stakeholders: real estate agents, escrow officers, appraisers. These people all depend on transaction volume to make their living. And we've been in a four-year slump in the existing home market. So I'm going to talk a little bit about why and how much longer that's going to last. That's a question I get from real estate agents almost every day: when are we going to get back to a more normal market? Yeah. Good luck.
And the last group of stakeholders I have here is the home builders, subcontractors, suppliers. These people care about new home sales and all the construction. So the number one question I get from them — they're interested in the other ones too — but the number one question I get from them is what about policy. So we talk about a lot of different policies: local policies, zoning regulations, expenses. But we also talk about things like nationally, what's going to happen with tariffs, what's going to happen with immigration.
The National Association of Homebuilders just had an article two days ago now, and they were talking about how a lot of homebuilders are really concerned about immigration policy. Not only are we deporting a lot of undocumented workers, which actually a lot of undocumented workers work in construction, so they're having a labor shortage right now. And on the flip side is we're having less of the really qualified immigrants coming in, and those tend to be home buyers. So, you know, that's a big area of concern for them is policy.
They're also, depending on where you are in the country, very concerned about climate change. Builders in Florida are experiencing the fact that it's hard to sell because insurance is so high. And now, of course, we're in California, we have that same issue, especially in fire areas. But anywhere in California, it's hard to get homeowners insurance now. It's a lot more expensive. Nothing like Florida. Florida's got special issues because there's low-lying areas that they won't even insure.
So policies — I'm not going to talk much about policy other than that. But I will talk about the other subjects. I will say that in California, since we're all in California, we have two rules that I think have really impacted housing enormously. They're both good and bad. One is Prop 13. Prop 13 has some positives. I've benefited enormously, but it has a lot of negatives. And the other one is the Coastal Commission.
You know, there's great things like allowing access to the beaches. But one of the things that attracts people to California is being closer to the ocean. Not that there's anything wrong with the inland areas, like right here. It's a pretty nice area. But the Coastal Commission has really limited some of the construction in some of the really most desirable areas. And of course, I've benefited from that too. So I'm speaking against my interest on this. But I also think that we need to rethink some of the Coastal Commission rules too. So Prop 13 and Coastal Commission for California are two big issues. And I talked to builders about that all the time.
So let me — I think I got ten minutes here. And then we're going to do another discussion. And it's fun to talk with Joe and Tracy, by the way. You guys probably know that. So this graph is something you probably see all the time. This is nominal house prices. This is from Case-Shiller. I actually follow about a half a dozen different indexes. They all show about the same thing. This shows that nominal prices are at an all-time high. And you can also see that bump in, like, 2005 or so.
That was the housing bubble that they were alluding to. I guess I was one of the many people that called that and the housing bust. And a lot of people have asked me, well, is this housing bubble number two? And the answer, of course, is no. The reason the housing prices dropped dramatically was because — just to kind of give an overview — is there was a lot of bad lending back in 2005, and that led to a lot of distress sales in 2006, 2007, 2008. And that distress sales is what really drives down prices.
Not so much every day. Now, we have seen a few areas that have had close to 20% price declines, but it's kind of regional. And the reason there are special issues — Punta Gorda in Florida has seen a close to 20% price decline, but that's because of homeowner's insurance and lack thereof, and also because, you know, the danger from climate change. So but if you look at the second graph, this is real house prices.
And back in 2002 or 2000 — and I think it was 2002 when the interest rates really jumped up — people were saying, is it going to be rust or bust, or are we going to have another bust like the housing bubble? Or is it going to rust away? And my answer was we're going to have an extended period of real declines, in real inflation-adjusted house price declines. And that's exactly what we've seen. It's actually been four years since the peak in real prices. And what that means is slowly the value becomes less and less as incomes rise and work.
And that may go on for some time now. It's really, you know, it's always hard to predict. When I first wrote the article, I called it the Seven Years of Purgatory, because that's kind of an average of how long it takes after a period like this. But that's just a good title. It could take ten years before we see higher real prices. Obviously, even from just this graph, you can tell that one, there is a slight upward slope to real prices, and two, we still have a little ways to go. So don't expect prices to take off in the near term.
And this graph — they asked me to do graphs because it breaks up the... So I said, okay, fine. This graph shows existing home sales right now. Probably a normal market would be about 5 to 5.5 million existing home sales. And for the last four years we've been running just over 4 million. As a matter of fact, in 2024, 2025, those are the lowest years of existing home sales since 1995. So 30 years, even worse than the worst of the housing bust. This year we're up about 2% year to date, but with mortgage rates jumping up recently, it's possible that we'll even be down again. So we might see the third year in a row that's below 1995.
So when I talk to real estate agents, and they're asking me when we're going to return to normal, one of the big problems — there's two major issues. One is affordability. We hear a lot about that. We got 7% mortgage rates, 7.22 today. So that makes it difficult comparatively for people to buy. Of course, when I bought my first house, the mortgage rates were 11%. So it's all relative. But the other reason is there's a whole bunch of people that have — as a matter of fact, 50% of homeowners with mortgages have mortgage rates below 4%.
So let me see. Yeah. Here's a graph that shows you this. So that dark blue area is under 3%. And the light blue area is under 4%. So you can see that the red area is increasing. That's the people that have been buying in the last four years. They have mortgage rates over 6%, I think it's 6%. Yeah, 6%. But that group of people — those 50% under 4% — it makes it really, really hard for them to move.
If you want — you know, a lot of times people move to add a bedroom or to a slightly better area or better schools. And they literally see, for almost the same house, maybe slightly better or slightly bigger, they see their mortgage rate doubled. And so it's really very, very difficult financially for them to move. And that's what I call the gap in the housing market, or the lack of the move-up market. The move-up market has just basically been dead for four years now.
So and this — I talked about how I made this graph on Monday, mortgage rates. It shows it just getting to 7%. Now we're almost at seven and a quarter, just a few days later, with the Fed raising rates and a few other issues going on. So this really addresses the affordability issue. And it also addresses that move-up market issue because you can't go from 4 to 7 and not see a huge jump in your monthly mortgage.
One of the interesting things is, in 2022, I wrote an article: The New Normal Is 6 to 7%. And it used to be that even before the pandemic that we saw some people with 4% mortgage rates, 4 to 5%, it was not that uncommon. But that was actually an effect of the financial crisis, a lingering effect. Now we've moved on from that. We're now going back to a more normal structure so that when you get a ten-year of 4.5%, you should expect a 30-year mortgage of, say, 6.5%. And so that's, you know, now I think yesterday was 5% on the ten-year. So we were a little above 7%. There's not a perfect relationship there, but that's one that people use all the time. So that's just a few slides anyway.
So now I'm going to bring Joe and Tracy back out.
