The U.S. housing bubble has risen to new heights; new disruptive phases indicate that it may be worse than the 2007-08 bubble. There is a pervasive general gloss to “white out” the worrying aspects. The Federal Reserve Bank of Dallas released a report March 29 of this year, which promoted the conclusion, “Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007–09 Global Financial Crisis in terms of magnitude or macroeconomic gravity.”
Home prices are now the highest ever. Moody’s Analytics, a research firm, released a study that found that U.S. home prices are currently “overvalued” by 24.7%, that is, the prices are 24.7% higher than they would historically trade, given current market levels. Moody’s analytics did a sub-study to this study, of particular importance. It found that during the first quarter of 2007, before the market bubble blow-out, 261 of the nation’s 414 largest regional housing markets were overvalued by more than 10%. Among those places, 102 markets were overvalued by more than 25%, while 10 markets were overvalued by more than 50%. Fast forward to today: during the first quarter of 2022, Moody’s Analytics found, among the nation’s 414 largest regional housing markets, 344 markets are overvalued by more than 10%. Among these, 183 markets are overvalued by more than 25%, while 27 markets are overvalued by more than 50%. Today’s housing market is far more overvalued than the market was prior to the 2007-08 explosion.
The recent past six months’ spike in interest rates, especially for the housing market, is very significant. A recent Fortune magazine reports that for a 30-year fixed-interest-rate mortgage, on a $400,000 house, at the going mortgage rate at the end of 2021 (approximately 3.05%), the monthly mortgage payment that a homeowner had to make would be $1,700 per month. Today, for the same 30-year mortgage on a $400,000 house, but at the present prevailing rate of about 6%, the homeowner would have to pay $2,400 per month—a stunning, 42% increase in monthly mortgage payment amounts in a mere 6 months. Most working families’ income levels cannot support that. There is a physical constraint.
