A recent headline from the Dallas Fed seems to have caused many to worry over whether or not we are in a housing bubble. To be clear, we don’t believe that this is a bubble. We agree with the recent housingwire article on this subject that while this is an unhealthy market, it isn’t a bubble.
Let’s talk history. Comparing current lending standards to what we had seen between ’02 and ’05 reveals that we’re not going to and haven’t been experiencing the same type of speculative mortgage debt expansion based on unsound credit. Here’s a quote from the Dallas Fed themselves:
“Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007–09 Global Financial Crisis in terms of magnitude or macroeconomic gravity. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom.”
Now if that’s not a recipe for (relative) relaxation, we’re not sure what is. Better lending standards protect us in downturns from experiencing what happened back then. What is concerning is how hot the home price growth has been, but home prices getting hot don’t create a bubble on their own. The bubble forms when you pair growth with massive speculative demand. All in all, while standards remain strong, we don’t believe there is much to worry about right now.
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Resources:
https://www.dallasfed.org/research/economics/2022/0329
https://www.housingwire.com/articles/is-the-dallas-fed-right-to-label-this-a-housing-bubble/