The housing market is the hottest it’s been since right before the 2008 crash – but there’s far less bubble risk this time around

buying home
  • Home price growth and construction are the hottest they’ve been since 2006 – the peak of a housing bubble.
  • Despite the similarities of some housing data from 15 years ago to today, experts see two very different markets.
  • Conditions driving this market boom are “fundamentally, radically different,” an economist told Insider.
  • See more stories on Insider’s business page.

Housing data is hitting levels unseen since 2006 in at least three different ways, begging the question of whether this is another bubble. Experts say this isn’t that – it’s economics.

Another housing bubble 15 years after the last one would be very bad news, as the epic pop of that market in 2008 threatened the stability of the entire global financial system. But while today’s price inflation is similar to then, the drivers behind this market rally look different.

Nationwide home prices grew 12% year-over-year – their fastest pace since 2006 – this past February, according to the S&P CoreLogic Case-Shiller Index. Gains were broad-based, with all 20 cities tracked by the index experiencing price growth above their respective median levels.

Separately, CoreLogic’s own home-price index also recorded the highest annual leap since 2006 in February. That gauge tracks home prices across the country, while S&P’s index measures prices in 20 metropolitan areas.

Also, for the first time since 2005, the median sale price for previously owned single-family homes is higher than that for new construction. In other words, the premium Americans typically pay to be the first to live in a new house has been completely erased as homebuyers have rushed to buy any home on the market.

“The conditions underlying what happened way back then, during the bubble of ’05 and ’06, and what’s driving price growth today are just fundamentally, radically different,” Frank Nothaft, chief economist for CoreLogic, told Insider.

Where dubious lending and market euphoria powered the mid-2000s surge, today’s boom is almost entirely due to a nationwide supply shortage. The monthly supply of homes sits near record lows of about 3 months, leading sellers to demand increasingly large sums for their properties. That compares to more than 12 months of supply in 2009.

Today’s market is also backed by a strong underwriting process and isn’t engulfed in a subprime mortgage crisis, Nothaft explained. The price growth we are currently experiencing, he continued, “is rooted in economics.”

Record low mortgage rates and the heightened focus on space have sent buyer demand through the roof, but a pullback from prospective sellers and a lack of newbuilds have resulted in a national decline in homes for sale.

“When you put all these pieces together, increase in demand and limited supply, it pushes prices up and that’s what we’re seeing in the marketplace,” Nothaft added.

Learning from post-crisis mistakes

Other gauges aren’t just at their hottest levels since 2006, but their hottest levels full-stop. The median selling price for existing homes touched a record high of $329,100 in March, according to the National Association of Realtors. And though the supply of previously owned homes has edged higher in recent months, it’s still close to February’s all-time low of 1.03 million units.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider.

The shortage can be traced back to that 2008 housing crash and its long-term fallout. The buying frenzy seen throughout the 2000s had fueled a boom in new construction as builders rushed to meet unprecedented demand. But once the bubble burst, contractors pulled back on building in an effort to prop up demand. Construction rebounded slowly through the last decade, leaving the market with diminished inventories once the pandemic-era boom began.

Daryl Fairweather, chief economist at Redfin, told Insider that the last decade saw a massive drop-off in homebuilding. Fewer homes were built by a factor of 20 going all the way back to the 1960s, she said.

But the latest data suggests contractors are finally heeding the market’s call. Home starts leaped nearly 20% last month to the highest level since, you guessed it, 2006. The reading also marks the largest month-over-month increase since 1990, underscoring the urgency faced by homebuilders.

Americans also seem prepared to keep the market boom alive for at least a while longer. The share of consumers planning to buy a home in the next six months rose to 8.9% in April from 8.1%, according to The Conference Board’s Consumer Confidence Index. That’s the highest proportion since 1987.

With millennials reaching peak homebuying age, supply bouncing back, and mortgage rates expected to move up slightly, economists don’t expect the housing rally to pop, but instead settle into more sustainable growth.

“I think we will return more to the trend that we were seeing pre-pandemic,” Nothaft said, which showed steady national price growth in the single digits. In February 2020, home prices increased by 4.1% year-over-year.

For millennials, who are entering or at peak homebuying age, that would represent a return to a pre-pandemic dynamic of record low mortgage rates but a housing market that still felt out of reach. It may not be a bubble, but it isn’t exactly attainable, either.

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US home prices jumped the most in 7 years in December as the housing-market boom charged into the new year, Case-Shiller says

FILE PHOTO: Homes are seen for sale in the northwest area of Portland, Oregon March 20, 2014.  REUTERS/Steve Dipaola
Homes are seen for sale in the northwest area of Portland, Oregon.

  • The S&P Case-Shiller US home-price index rose to a 10.4% annualized increase in December, up from 9.5%.
  • The reading marks the strongest pace of price growth in seven years, according to a press release.
  • The data suggests the US housing market¬†ended 2020 strong amid low inventory and record-low mortgage rates.
  • Visit the Business section of Insider for more stories.

US home prices surged through the end of 2020 as record-low mortgage rates kept demand at elevated levels, and a general inventory shortage propped up prices.

The S&P CoreLogic Case-Shiller US National Home Price Index posted a 10.4% annualized increase in December, according to a Tuesday press release. The gain follows a 9.4% annualized climb in November and marks the biggest single-month leap in seven years seen by the index, a leading national dataset.

S&P Dow Jones Indices’ 10-City Composite index rose to an annualized gain of 9.8% from 8.9%. The 20-City Composite rose to a 10.1% year-over-year jump from November’s 9.2% reading.

Phoenix, Seattle, and San Diego saw the biggest home-price increases among the 19 cities surveyed in December.

“These data are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” Craig Lazzara, managing director and global head of index investment strategy at S&P DJI, said in a statement. “This may indicate a secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway.”

The housing market was one of the few pockets of the economy to see explosive growth through 2020 as new buyers rushed to scoop up dwindling inventory. The Federal Reserve’s decision to drop interest rates to nearly zero in March 2020 dragged on mortgage rates and, along with the onset of the work-from-home era,¬†sparked a homebuying spree. The surging pace of sales for new and existing homes quickly left contractors struggling to keep up.

Though the Tuesday release shows the housing market’s rally set to continue into 2021, momentum has wavered in recent weeks. After the 30-year fixed mortgage rate sank below 3% for the first ever in mid-2020 and stayed there for months, it turned higher in mid-January, signaling the buying frenzy could soon cool.

This shift was one of several January and February datapoints indicating investors are growing wary of inflation leaping higher as the economy recovers. Rising inflation would likely correspond with rising mortgage rates and, in turn, slow home-price growth.

Still, the US housing market will likely thrive through 2021 as more forthcoming stimulus bolsters homebuying activity, Fitch analysts led by Suzanne Mistretta said in a February 16 note. The firm said it expects prices and mortgage volume to continue growing in 2021 due to consistently low borrowing costs and lasting supply constraints. Demand is likely to outpace supply until the effects of the coronavirus pandemic fade, the analysts said. In other words, there won’t be enough homes to go around for a while yet.

Market health could waver should job losses creep into previously unaffected industries and hit higher-income workers, the team added.

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