Despite the fact that more than three-quarters (77%) of surveyed homebuyers and sellers believe there’s a housing price bubble in the area where they live, and 44% of real estate agents believe there’s a housing bubble in the market where they work, Redfin’s Chief Economist says that’s not the case.
“Homebuyers and sellers are rightfully concerned about how fast prices are rising, especially those who remember the housing market crash during the Great Recession,” said Redfin Chief Economist Daryl Fairweather. “If this rate of price growth were to continue for another year, I would be worried about a bubble, too, but I predict home-price growth will slow significantly in 2022. What we’re going through right now is closer to a ripple in the water than a bubble. Mortgage rates are already going up, which will likely stabilize demand and reduce the risk of a bubble that could burst.”
A housing bubble is characterized by rapid unsustainable growth in home prices, eventually “bursting” when demand no longer supports the high home values, followed by sharp price declines, Fairweather pointed out. It’s typically caused by an influx of demand from homebuyers and investors.
The housing market has been ultra-competitive since the coronavirus pandemic upended American society in mid-2020, ushering in an era of remote work and record-low mortgage rates that have resulted in strong homebuyer demand and a severe supply shortage. Median home prices have been growing by double digits all year long.
However, average 30-year mortgage interest rates have already risen roughly 0.5 percentage points since the beginning of the year, landing at 3.56% in the week ending January 20, and they’re likely to continue increasing.
“The housing market is much stronger than it was before and during the Great Recession,” Fairweather said. “There’s a very low likelihood that home prices will go down anytime soon.”