Is The U.S. Already In A Housing Bubble?

Published by FOX Business | April 20, 2022
Whether America is facing a crisis in its real estate market remains up for debate.

The Federal Reserve Bank of Dallas made headlines in recent weeks after warning that there are signs of a “brewing U.S. housing bubble.”

That prospect sparks fear in anyone who remembers or felt the impacts of the housing market crash that hit America during the 2008 financial crisis and subsequent Great Recession.

While most economists appear to agree that there are a lot of differences between what is happening now and what occurred in the late aughts, the jury is still out on whether a housing bubble is currently upon us – and what that could mean.

“A housing bubble can generally be defined as an unsustainable period of house price growth generated by artificial demand, such as loose underwriting or speculative buying. The price growth in today’s market is driven by an extreme supply shortage relative to demand.”

–Odeta Kushi, deputy chief economist at First American Financial Corporation.

Indeed, the housing market right now is experiencing record-low inventories, and prices are at record highs.

Kushi says that looking back at the housing bubble in the mid-2000s, house price appreciation was characterized by a surge in demand driven by wider access to mortgage financing. “The housing market today is not driven by loose lending standards, sub-prime mortgages, or by homeowners who are highly leveraged,” she says. “The house price appreciation in today’s housing market is supported by the fundamentals and characterized by a shortage of supply relative to demand.”

Brad DeLong, a professor of economics at the University of California-Berkeley, told FOX Business over email that he looks at the excess of housing above-trend built during the housing boom of 2000’s and compares it to the size of the housing bust during the 2010’s, and concludes that the second is three times the size of the first.

“I think that while there are places in which housing is definitely bubbling, for the country as a whole that is really not the way to bet,” DeLong wrote. “We have been under building for a decade and a half, and the fact that housing demand is finally reverting to normal is making this under building very visible to us.”

Mark Thornton, a senior fellow and chair in Austrian Economics at the Mises Institute, argues there is “no question” that the U.S. is in a housing bubble, but “where we are in the housing bubble is a different matter.”

“When you look at the amount of loans going out for real estate in general, it’s huge,” Thornton told FOX Business. “So where the problem is, and who’s going to have to pay for it are yet to be determined.”

Thornton says that it’s not just housing we should be looking at, because “we’re in an economy where just about everything is in a bubble.”

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