Is the U.S. in a Housing Bubble?

With a nearly two-year long seller’s market and the effects of a global pandemic, it’s tough to say where real estate in the U.S. is heading next.

But three industry experts – Lawrence Yun, Chief Economist with the National Association of REALTORS® (NAR), Ward Morrison, President of Motto Mortgage, and Nick Bailey, President of RE/MAX – say they believe the market is NOT in a bubble and will instead experience a cooldown. The three discuss why on the latest episode of “Keepin’ It Real with Nick Bailey.”

“We have seen a run up in price appreciation more in the last couple of years than in the past 45. It’s been pretty incredible. And [we’ve seen a rise in] the amount of home equity that is being established with this run up in prices,” Bailey says.

In the end, he says, he anticipates a good, stable market, “but we’ll have to adjust a little bit along the way.”

The panelists offered overlapping outlooks into what could lie ahead for inventory and financing of home sales across the nation. Here’s a glimpse at what they shared.

According to Yun, as of September 2021, the prices of homes in the U.S. have risen 14%. He believes, however, that this uptick is soon to simmer and head in the direction of a more balanced market.

“Going into next year, I do believe the mortgage rates will begin to tick higher and that’s the principal reason as to why I believe that home sales will come down from the exceptional performance of 2020,” Yun says. “[They may come] down 2% and [that’s] not a big deal. But [for] prices, people should no longer expect that big 20% price gain.”

Instead, Yun expects to see a more modest 3% gain on home prices nationwide in 2022. And he believes local economies and market conditions will give potential buyers and sellers the most insight.

Suburban communities once considered affordable are still seeing an influx of people fleeing the cities due to work-from-home flexibilities or the desire to own more property for less. And new-home construction in these areas is also a contributing factor to the spike of home prices.

Morrison expects to see a rise in rates, but his anticipated increase to 4% would still be historically low, keeping one barrier to entry in this market at bay. He also expects refinances to slow down and home prices to cool off.

“Millennials are in their prime home-buying years right now [and] Gen Z is going to enter that, so I think the supply [and] demand situation is still going to be leaning toward demand,” Morrison says.

Yun adds that continued low mortgage rates may help younger homebuyers who are delaying the dream of homeownership due to financial factors like paying off student loan debt.

Addressing the idea that the market is a bubble that could pop and cause turmoil, both panelists agree it’s unlikely. Instead, they expect to see the market balancing out slowly and naturally. Morrison points to responsible lending and solid credit standards as reasons for optimism.

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