Short answer. The 2008 U.S. housing crash was a 50%+ decline in home sales volume and 24% decline in median existing-home prices over four years. It was triggered by the collapse of subprime mortgage securitization and resolved into the steepest U.S. recession since 1982.
The 2008 housing crash is shorthand for a multi-year decline that began in 2006 (volume) and 2007 (prices) and bottomed in 2011.
The numbers
Sales volume:
- 2005 peak: 8.36M total (1.28M new + 7.08M existing)
- 2011 trough: 4.50M total (306K new + 4.19M existing)
- Peak-to-trough decline: -46% combined, -76% new construction
Median prices:
- 2007 peak: $217,900 (existing) / $247,900 (new)
- 2011 trough: $166,200 (existing) / $227,200 (new)
- Peak-to-trough decline: -24% existing, -8% new (Case-Shiller national: -27%)
What caused it
Subprime mortgage securitization had scaled rapidly between 2003 and 2006, with private-label RMBS (residential mortgage-backed securities) absorbing nearly half of all U.S. mortgage origination by 2006. When subprime ARMs began to reset to higher rates in 2006–2007, default rates spiked, the ratings on subprime RMBS began to be downgraded, and the securitization machine seized up. Without securitization buyers, mortgage credit availability collapsed; without mortgage credit, transaction volume collapsed; without transaction volume, prices fell.
The resolution
The Federal Reserve cut the federal funds rate to zero in December 2008 and began QE (quantitative easing) — buying $1.25T in MBS through 2010. The Treasury supported Fannie Mae and Freddie Mac (placed in conservatorship in September 2008) to keep mortgage credit flowing. The recovery was slow: sales volume did not return to 2007 levels until 2017; new construction did not return to 2005 levels and still has not.
Sources
U.S. Census Bureau Survey of Construction; National Association of Realtors Existing Home Sales report; Freddie Mac Primary Mortgage Market Survey; National Bureau of Economic Research Business Cycle Dating Committee.