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Nearly two-thirds of Americans own their homes, and the spike in home prices over the past year has boosted their fortunes. However, the quick rise in real estate values also leaves many would-be buyers on the outside looking in. “Today’s housing boom is not without consequences,” Wolf says. “There is a clear line between the winners and losers that can cause lasting economic inequality issues.” In another warning sign, it’s not always good news when the housing market takes on a growing role in the economy. Consider this chart of a category of spending known as “residential fixed investment” — the measure of homebuilding, apartment development and renovations — over the past two decades. The share shot past 6 percent during the housing bubble, then plunged to less than 3 percent during the Great Recession. It’s the sort of trajectory that brings back unpleasant memories of the last time the housing market boomed. However, housing economists agree that no major crash is coming to a housing market characterized by a shortage of supply, an excess of demand and still-strict lending standards. “You can say the housing market is bubbling, but you don’t necessarily say this is a bubble,” Naroff says. “Could prices come down in a year or two when things settle down? Yeah. Right now, people are bidding above asking price, so that tells you there is some risk there.” However, Naroff foresees no steep decline in home values, and nothing approaching the plunge in prices from 2008 to 2010. Most housing economists expect home values to plateau rather than crash. Learn more
SHARE: Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal. Related Articles