The housing market is entering a period of extreme transformation after a pandemic-induced homebuying boom. Mortgage rates are rising, buyer demand is slipping, and home sales are slowing, but according to housing experts, a rumored ‘housing bubble’ isn’t about to burst—not yet, at least.
Over the past two years, the median existing home sale price in the U.S. increased faster than at any point since 2000, even outpacing home price growth seen during the run-up to the mid-2000s housing crash, Realtor.com reports. Now, price growth is cooling as sales slow, and once housing costs reach normal levels and inventory ticks up, experts say a housing market that so many feared was inching toward a bubble will at last begin to normalize.
The last housing bubble was protracted and painful, dragging the world’s financial markets down along with it. Home prices didn’t bottom out until 2012, according to existing-home sales data from the National Association of Realtors.
Economists say it’s different this go-round. Prices rose because there weren’t enough homes for sale to meet demand. And mortgage rates bottomed out to record lows in the mid-2% range, making it possible for buyers to afford higher prices as they weren’t paying as much interest. So prices climbed.
“The market is overvalued now. Prices have gotten way ahead of incomes, rents, and construction costs,” says Mark Zandi, chief economist at Moody’s Analytics. “The market is now correcting. … Over time, affordability will be restored and the market will find its footing.”