FED Economists Point to Signs of Housing Bubble in US

MAR 31 2022·Updated DEC 26 2022

Story

Image credit: Reuters [via Al Jazeera]

The Facts

As US home prices continue to rise to unprecedented heights, economists are starting to warn of a potential bubble in residential real estate.
CNN
Economists and researchers at the Federal Reserve Bank of Dallas have sounded the alarm that housing prices are increasingly "unhinged from fundamentals" like supply, demand, labor, and construction costs.
CNN
Evidence suggests that demand for second or vacation homes is also starting to wane in the face of rising prices and mortgage rates.
Al Jazeera
A fee increase on second mortgage loans starting this month is likely to further dampen demand for second homes.
Al Jazeera
When homebuyers believe that prices will continue to rise, they create a condition of "exuberance" when buyers behave irrationally out of a fear of missing out.
CNN
The economists caution policymakers and homebuyers alike to pay attention to local conditions "before misalignments become so severe that subsequent corrections produce economic upheaval."
CNN

Sources Split

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The Spin

Pro-establishment narrative

The so-called "bubble" is based in large part on decades of underbuilding, which has created a growing supply shortage. Moreover, the fundamentals this time are nothing like those of the crash in 2008. Loan underwriting standards have improved since then, and household balance sheets are much healthier.

USA Today

Establishment-critical narrative

The run-up in housing prices - not to mention rents for single-family homes - is a direct result of the entrance of private equity into residential housing markets. Pools of investment capital are driving up home prices across the country and ensuring that the American Dream is no longer a reality for most.

The New York Times

Cynical narrative

There is good reason to think that this already-inflated housing market still has a long way to run, and the majority of new mortgages will continue to go to buyers with the most means and the highest credit scores. This means that the housing market is likely to further exacerbate the growing divide between the haves and the have-nots.

Awealthofcommonsense