Back in the early 2000s, short-sighted lenders gave out loans (or better put, subprime mortgages) to homebuyers who historically wouldn’t have qualified. As buyers tapped into that credit, both home prices and homebuilding levels soared. That party finally stopped once Fed tightening pushed the U.S. housing market into correction mode in 2006. In the years that followed, that building boom turned into a supply glut and those bad loans turned into a foreclosure crisis. That combination of oversupply and "forced selling" saw U.S. home prices fall 26% between 2007 and 2012.
Fast-forward to 2022, and Fed tightening has once again pushed the U.S. housing market out of boom mode and into correction mode. This time around, however, there's neither a supply glut (inventory remains well below pre-pandemic levels) nor a glut of bad loans (which got outlawed by Dodd-Frank in 2010).
