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Throughout the course of the Covid-19 pandemic people have wondered if we were heading toward a housing bubble, and the consensus was “not likely”. However, recently that conclusion has been shifting more toward a cautious “yes” as the symptoms of an imbalanced market continue to grow.

There is little debate over the fact that housing prices have been rising at an exorbitant rate over the past two years. Though there has been some concern of a pandemic-induced housing bubble bursting, the correction of the conditions that led to 2008’s burst combined with today’s stronger borrowing terms, had us all pretty confident that we were not in a housing bubble. Now, as inflation rates soar to 8.5 percent for the month of March, mortgage rates rise, and quarterly home price growth going from an average of 5.3 percent to double digits, that confidence is wavering.

How will we know a housing bubble is about to burst?

The Federal Reserve Bank of Dallas defines it as when prices rise at a rate that is “out of step with market fundamentals”. They also remark that while this in itself does not signal a housing bubble, this combined with today’s belief that the rise is only going to continue, is what will likely drive us toward a correction. Why? Because demand will not decline as home buyers fear being priced out of the market, resulting exorbitant price appreciation that eventually leads to a greater fear of a market correction, to the point that buyers become hesitant and as sales drop a correction becomes more likely. Essentially, it’s a self-fulfilling prophecy.

What effects are we likely to see?

The Federal Reserve Bank of Dallas remarks on current housing costs outpacing wages, which means fewer people can afford to buy (or even rent) and first-time buyers will be priced-out. On top of this, continually rising rates will cause a decline in demand and investors will step back as profits would decrease. One big factor to consider though, is inventory. Lack of homes to buy has been a persistent problem that has contributed to the 20% increase in home prices, and though inventory levels have risen since February 2022, they are still down from this time last year. If inventory can return, this may delay (or prevent) a housing bubble, and if it doesn’t return then a lack of inventory could make a crash more likely.

How you can stay on top of current market trends…

Regardless of what turn the housing market takes, you can stay on top of current trends and developments with data powered by The Warren Group. Our Data Solutions have you covered from tracking current lending intelligence to examining the latest property developments in your target location, to the latest in real estate listing data and beyond. Keep on top of today’s latest market changes by reaching out to a data specialist and asking about the best data solutions to suit your business needs.