It’s like déjà vu in the housing market.
Just a few months ago, home prices hit record heights, investors were gobbling up scores of homes, and buyers were racing to purchase whatever they could before prices rose even further. Then, quite suddenly, the market seemed to seize up and prices and sales began falling.
Last month, Federal Reserve Chair Jerome Powell said the COVID-19 pandemic market had been in a “housing bubble.” But it was likely rising mortgage interest rates, a result of the Fed hiking its own rates to bring down inflation, that most directly led to the real estate freeze. The culprits were not subprime mortgages, wild speculation, or overbuilding—the primary causes of the housing crash of the late aughts.
And while just about every real estate expert has a slightly different definition of a housing bubble, all strongly agreed that our current housing market, however stressed, does not closely resemble the one that led to the last crash.
“Your everyday person on the street, when they hear ‘bubble,’ they probably think there is a rising risk that home prices will crash,” says Realtor.com® Chief Economist Danielle Hale. “There are some warning signs, [a feeling that] something has to adjust. … [However,] there are some indications that we’re in a much healthier place than we were in 2008.”
If Powell is right, and the market is indeed a bubble, it might be a type we haven’t encountered before. This time around, there isn’t a glut of available housing, the subprime loans that got so many homebuyers in trouble in the mid-2000s have largely been eliminated, and millions of Americans aren’t likely to lose their homes to short sales and foreclosures.
Something new and dramatic would likely be necessary in order to set off another collapse.
“There’s no formal definition of ‘bubble,’ so people can call it whatever they want,” says Bill McBride, an economics blog writer at Calculated Risk who predicted the last housing bust. “The real question is what’s going to happen.”
Unquestionably, the housing market has taken a vicious beating lately. Higher mortgage rates have made homebuying unaffordable to millions, decimating the ranks of home shoppers. Homes are now sitting on the market longer, more sellers and builders are slashing prices, and sales are evaporating. Sellers now often have to make concessions, sometimes even expensive ones, to get a sale across the finish line.
“This is not a replay of the Great American Housing Bubble,” says real estate and finance professor Susan Wachter, of The Wharton School of the University of Pennsylvania. And she’s in a position to know: She’s the co-author of “The Great American Housing Bubble: What Went Wrong and How We Can Protect Ourselves in the Future.”
“Mortgage rates have more than doubled from last March, so it’s not surprising that housing prices in many markets are falling and flatlining across the country,” says Wachter.
So how does today’s housing market compare with the run-up to the Great Recession? That depends on where you’re looking.
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