Experts Say We Might be ‘Skating Close’ to a Housing Bubble

In the past 12 months, U.S. home prices have skyrocketed nearly 20 percent, the biggest jump ever. In fact, the next-closest jump in prices was posted just prior to the housing crash of the mid-2000s, when one 12-month leap was more than 14 percent.

While analysts across the board agree that this scalding-hot market cannot continue forever, most are voicing moderate views when it comes to a “correction.” After all, it’s only a correction if you have a mistake to deal with, right? And in this market, it appears to not be a mistake that more Americans want and need specific types of housing (preferably single-family residential, although amenity-rich multifamily is definitely showing appeal as well) and are willing to fight for it with their wallets.

However, said George Ratiu, one of the housing economists at Realtor.com, the national market could be starting to form a bubble.

“We are not in a housing bubble just yet,” Ratiu wrote in an article at the end of April, “but we are skating close to one if prices continue rising at the current pace.”

He cited rising interest rates (5 percent at the end of the month) and the fact that buyers are paying more than one-third more for the same houses they are buying today compared to how much people paid for those same homes a year ago.

The Mortgage Bankers Association (MBA) also recently published data indicating the number of people applying for mortgages has fallen 5 percent since last year, which could contribute to a cooling in demand in the market.

The Dallas Federal Reserve appeared to agree with Ratiu, writing in a recent market research paper, “U.S. house prices are again becoming unhinged from fundamentals.”

Interestingly, however, they added that a housing correction in 2022 would be unlikely to be comparable in scale to the global financial crisis that took place between 2007 and 2009. “Excessive borrowing does not appear to be fueling the housing boom,” they wrote.

Many analysts believe that there could be a correction on the horizon, but say it will be more of a “leveling off” than an actual bubble and then a bust. HousingWire lead analyst Logan Mohtashami recently observed that rising interest rates and cooling homebuyer interest could be a good thing that might moderate many markets. However, the consensus remains, as it always does in real estate, that whatever the national numbers do, the impact will differ locally.

Ratiu himself summed it up, saying, “Some markets will see a correction if mortgage rates continue to rise, in which sales will drop and prices will follow.” Ratiu predicted the Rust Belt, including cities like Toledo, Ohio, and Rochester, New York, could see this trend first. On the other hand, already “overvalued” markets like those in the southeast could hang in there for quite some time as the cost-of-living factor trumps (slightly) waning homebuyer interest.