Economists Warn the Housing Market Is Set for a Housing Bubble: Report
The Federal Reserve shares its concerns that the housing market is mirroring other conditions that preceded a housing crash.
The Federal Reserve Bank of Dallas warns that the housing market is showing “signs of a brewing US housing bubble.”
According to its report, the demand for homes will drastically outweigh the ones available for sale, ultimately driving the price up even more dramatically. This is often followed by “the bubble bursting,” which is a housing crash — the value of homes drastically drop, potentially contributing to a recession, similar to that of 2006.
The signs of this impending bubble are present, including rising mortgage rates that are the highest they’ve been since 2018 — according to Freddie Mac — and the national median listing price for a house spiking to $405,000, according to Realtor.com.
The website also shared an increase of a typical home listing price by 27 percent within the last two years, partially due to the pandemic leading to remote workers to alter their work locations.
Experts also measure the potential for a housing bubble through a statistical model called the “exuberance indicator.” Esssentially, when prices reach a high point that does not line up with another economic explanation, that drives the exuberance measure up. The closer the measure is to 95 percent showcases “abnormal explosive behavior,” according to the report.
Currently, the exuberance measure is 115 percent. This in combination with factors connected to the stock market and discounted future rent has also led economic analysts to expect a housing boom, according to the report.
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