Economists say housing market not in a bubble

As home prices continue to break growth records, most housing experts and economists surveyed by Zillow do not believe the market is in a bubble.The latest Zillow Home Price Expectations Survey polled more than 100 experts from academia, government and the private sector on the state of the housing market and future growth, inflation forecasts and recession risks. Of those surveyed, 60 percent said they do not believe the housing market is in a bubble, compared with 32 percent who think we are in a bubble, and 8 percent who are not sure.

“Americans have seen home values rise at record rates over the past few years. But although a recession is looking more and more likely, the housing market today is a far different beast than what we saw in the mid-2000s,” Zillow economist Nicole Bachaud said in a release. “Unlike in 2006, this market is underpinned by strong fundamentals and has been built on mortgages with sound credit, factors that won’t change in the near term.”

The most popular reason for respondents refuting the bubble thesis is strong market fundamentals, including demographics, scarce inventory, shifting housing preferences and low credit risks. Another large group of respondents reject the term “bubble,” which implies a crash they do not believe is imminent.

Among those who do believe we’re in a bubble, unaffordable prices in the absence of record-low mortgage rates were the chief rationale.

While the panel largely does not believe the housing market is in a bubble, it does foresee a recession coming soon.

The Federal Reserve is working to strike a balance between reducing rampant inflation and avoiding a recession. Those polled by Zillow are skeptical that this “soft landing” will be achieved, as 56 percent do not expect the Fed to materially reduce inflation while averting a recession.

The remaining respondents are split, with half believing the Fed will be successful in avoiding a recession while reducing inflation, and the other half not being sure.

Of those who doubt a soft landing will happen, three-fourths see a short recession as the most likely economic outcome. The largest portion of the panel (45 percent) expects the next recession to begin in 2023, which gathered more votes than 2022 (30 percent), 2024 (8 percent) or 2025 and beyond (17 percent).

“Although the Great Recession was triggered by a housing crash, it’s an outlier in the grand history of recessions, which have often strengthened investment in housing due to its relative stability as an asset,” Bachaud said.

 

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