Are We In Another Housing Bubble?

Chart of the Week: Keeping an Eye on the Homes Front

March 7, 2022

People are buying houses at a clip last seen in the housing market bubble of the mid-aughts. Do we think this is another bubble in the making? No. Housing has been misaligned since the pandemic struck—first demand dried up, and then the market rebounded rapidly. With time, and as we return to “normal,” we expect housing to regain equilibrium.

That said, we would not be surprised to see sales trend up over the next few months as buyers move to take advantage of lower-for-now mortgage rates.

The average rate borrowers were getting on 30-year fixed mortgages had been rising since last summer. It peaked near 4% last month, close to a three-year high. But in the aftermath of the Russian assault on Ukraine, mortgage rates fell to 3.76% on Thursday as investors flocked to safety—lowering borrowing costs for buyers. With the Federal Reserve on track to raise the fed funds rate this month, mortgage rates will likely follow suit, making this temporary reprieve all the more enticing for buyers looking to lock in a lower rate on their loan.

Is this a housing bubble
Note: Chart shows annualized number of existing home sales on a monthly basis from December 1999 through January 2022. Source: Federal Reserve Bank of St. Louis.

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