From CBS News:
Homebuyers have faced a tough choice during the pandemic: Swallow rapid price increases and forgo typical steps like house inspections, or risk getting left out of the real estate market. Those dynamics have caused some observers to question whether the U.S. is repeating the housing bubble of the early 2000s, which led to a painful housing crash in 2006 and the Great Recession the following year.
The answer, warns the Federal Reserve Bank of Dallas, is that the property market is showing “signs of a brewing U.S. housing bubble.”
That may be unsettling to millions of potential homebuyers who are coping with myriad financial pressure points. For one, mortgage rates are swiftly rising, reaching an average of 4.67% for a fixed 30-year loan for the week ended March 31 — the highest since 2018, according to Freddie Mac. And the national median listing price for a home has jumped to a record $405,000, Realtor.com said on March 31.
First, the economists looked at a statistical model that tracks “exuberance,” or when prices increase at an exponential rate that can’t be justified by economic fundamentals. When their exuberance measure reaches a 95% threshold, that signals 95% confidence that the market is experiencing “abnormal explosive behavior,” they noted.
The current exuberance measure: 115%.
Next, the economists looked at another measure of valuation: Comparing home prices against the sum of discounted future rents. It’s a similar concept to how investors determine the value of a stock by looking at discounted future dividends, the economists noted.
That, too, is showing exuberance that is “comparable to the run-up of the last housing boom,” they said.
Third, the analysts examined the ratio of home prices to disposable income, another measure of housing affordability. This hasn’t risen to the level of exuberance, but the economists noted that household disposable income was buoyed during the pandemic by stimulus checks as well as a decrease in household spending due to lockdowns — transitory factors, in other words.