Are we headed to a housing bubble? The Dallas Fed on Thursday published an article titled: Real-Time Market Monitoring Finds Signs Of a Brewing U.S. Housing Bubble. The online reaction was immediate — housing must be about to crash. I disagree with this conclusion. That’s not to say that the data points the Fed used are incorrect — in fact, we are in a savagely unhealthy housing market, but it’s not a bubble.
Let me explain.
First, because there is no speculative debt demand going on today, there can’t be a housing bubble. We aren’t anywhere close to the housing bubble dynamics we had from 2002 to 2008; that environment is simply impossible to replicate.
My rule of thumb has always been, if you’re going to use the phrase housing bubble, you need to point to when the bubble started, because a bubble means that prices would fall back to some earlier point in time. For the housing bubble 2.0 crew, this would mean home prices would have to get back to 2012 in a short amount of time.