3 signs another housing bubble is looming in the US

Experts dismissed housing-bubble concerns earlier this year, but they're not anymore.
Key datapoints are on track to reach bubble levels soon, although most sit below their 2006 peaks.
Here are three signs the US is hurtling toward another housing bubble - if not there already.
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The US housing market doesn't seem to be in a bubble - yet.

Over the last several months, the housing market resembled its late-2000s boom in more ways than one. Homes are selling in a matter of days, not weeks. Bidding wars are pushing many prices well above their listing levels. And rent prices have begun surging as prospective buyers exit the red-hot market.

Yet experts have largely agreed that the pandemic-era market was crucially different. The late-2000s frenzy was powered by dubious lending practices and rampant speculation, factors that exacerbated the crash in 2008.

In contrast, the current price surge is "rooted in economics," Frank Nothaft, chief economist at CoreLogic, told Insider in April, citing the eternal economic law of supply and demand. The sudden shift to remote work powered historic demand for homes and supply was limited due to decades of underbuilding. Those two dynamics sparked the buying spree seen throughout the back half of 2020 and early 2021, Nothaft said.

The market is also plagued by a classic case of FOMO, or "fear of missing out." The Federal Reserve's emergency rate cuts and purchases of mortgage-backed securities threw fuel on the housing market's nascent flames. And as prices began to climb, more buyers emerged, looking to take advantage of record-low mortgage rates while they lasted. A handful of Fed officials have since considered pulling back from the policy support, with one even saying he didn't want to "get back into the housing bubble game."

The drivers, then, are different. But when you look at the data, it's ominously similar to 2006. The market might not be in a bubble for the reasons that 2006 through 2008 was, but a handful of measures suggest it's coming close for different reasons entirely.

Here are three signs that the housing market is creeping toward a 2008-like bubble.

1. Prices are above bubble levels

The Case-Shiller National Home Price Index is among the most popular measures of nationwide price growth, and it's exceeding the heights of the late-2000s boom.

Prices set several record highs through 2021 as extraordinary demand slammed into inadequate supply. Accounting for inflation tells a similar story. The inflation-adjusted index surpassed its 2006 peak during the pandemic and continued to climb through May.

Whether the increases are driven by speculation or simple economics, prices are squarely above their housing-bubble highs.

2. Homes are selling with bubble-like intensity

It's not just price growth that echoes the last housing boom. The ferocity with which homes are selling is unlike any seen since 2008, and possibly the wildest on record.

To start, homes are spending mere weeks on the market when they used to spend months. Median days on the market totaled just 16 through the four weeks that ended August 1, according to real estate website Redfin. That compares to nearly 36 days at the same time in 2020 and about 38 days in the same period of 2019.

And when homes do sell, they're typically going for more than their listing price. The average sale-to-list ratio in metropolitan areas has been above 1 since late February and currently sits at roughly 1.02, according to Redfin.

Behind both data points are the frenzied bidding wars that have become the new normal. Rapid-fire battles between interested parties have sidelined buyers who don't have the time or money to compete. That winner-take-all environment only exacerbated the months-long housing crisis, Logan Mohtashami, lead analyst at Housing Wire, told Insider in July.

"Buyers talk about how they can't win the bid. They make good money, it's not like they're struggling. They just don't make enough money compared to other Americans," he said. "That's the frustrating thing. These people just want to buy a home to live in and they can't win a bid. Housing shouldn't be like that."

3. Rents are also spiking higher

Home prices aren't the only ones surging. Rents have similarly skyrocketed, and the relationship between selling and rent prices is approaching bubble levels.

The nationwide price-to-rent ratio rose just above 1.5 at the peak of the market boom in 2006. That same gauge touched 1.45 in May, and has been on the rise since early 2020.

CALCRISK — Source: Calculated Risk
Calculated Risk

To be sure, the measure is less concerning when only looking at the top 20 largest markets in the US. The narrower ratio hit 1.7 during its bubble peak, and sat at 1.5 at the end of May.

"We're getting close to the 2006 peak, but we're not there yet," economics blogger Kevin Drum said. "In any case, a price-to-rent ratio this high sure seems kind of bubbly to me, and I wouldn't be surprised if the big spike starting in 2020 is COVID related, not fundamentals related."

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