Bubble or No Bubble? What History Tells Us About the Likelihood of a Housing Crash This Year
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As home values continue to rise at a double-digit pace, confidence in the housing market is eroding.
Only 30% of respondents in Gallup’s annual Economy and Personal Finance Poll said it was a good time to buy a house, a whopping 23 percentage point drop from last year. What’s more, in a recent survey by real estate brokerage Clever Real Estate, 45% of likely home sellers said they believe there is a housing bubble that might pop this year.
Concerns over a housing bubble have been brewing for months. In March, the Federal Reserve Bank of Dallas reported an increasing concern over the possibility of a bubble as home prices continued to increase at a fast pace.
The fear of a new bubble is understandable. Most people remember the devastating effect the last housing collapse, including more than 6 million households that lost homes to foreclosure.
However, those worried about a 2008-style housing bubble may be better served looking further back in time for how today’s market may play out.
Why today’s market is different from the marker in 2008
In the years leading up to the 2008 collapse, deregulation in the financing industry led to easy access to credit for many homebuyers who would not have previously qualified for a loan. This caused demand to boom, which in turn pushed home prices higher and led to investor speculation and overbuilding.
Loose regulations meant these same subprime borrowers were often sold alternate loan products such as adjustable-rate mortgages or even more exotic products such as those featuring balloon payments. When those rates became adjustable and started increasing dramatically, many owners could no longer afford the monthly payments and went into foreclosure.
