Housing indicators are disturbing, but it may not be a 2008 repeat – Federal Reserve Bank of Dallas

March 30th, 2022 by Sean A. Stephens, Esq., CMB®

As recently reported by Fortune.com, Potential home buyers that have waited until 2022 for a possible dip in the markets may be disappointed. Last week we learned that home prices hit 19.2% in January for the year-on-year growth.

This puts U.S. home prices well above the 11.3% increase the previous year and the 14.5%, which was the peak annual rate recorded in the run-up to the housing bubble that burst in 2008.

Is the housing market setting up for a major crash like 2008?

According to the Federal Reserve Bank of Dallas, the short answer is no, but they do see a market dip. A paper titled “Real-time market monitoring finds signs of brewing U.S. housing bubble” outlined several areas for concern that the market will continue trending up at a high rate.

“Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators…house prices appear increasingly out of step with fundamentals,” noted the Fed researchers.

They reached this conclusion after comparing housing prices to other economic indicators.

Several factors contributed to the housing boom during covid. The first one is the historically low mortgage rates that prevailed during the pandemic, and the second was the surge of first-time millennial homebuyers. These two factors have been understood as the major factors driving the demand and pricing boom.

Researchers also argued that homebuyers driven by the ‘fear of missing out,’ or FOMO fueled the housing price and demand fire. This has been flagged as a serious risk to cause a market drop because it was also identified as a critical ingredient that drove demand in the phase leading to the 2008 housing bubble.

That being said, the researchers believe that the market is not headed for a 2008-style crash despite these worrying indicators.


1) Higher disposable income

Compared to the 7% of disposable income that was being contributed towards mortgage payments in 2007, the latest figure, taken in 2021, says that only 3.8% of income is going towards mortgage payments. It means that households are better placed financially.

They stated, “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. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom,”

2) High mortgage rates should cool demand.

Some experts hope that the rising mortgage rates will help cool demand and avert a catastrophe. The average 30-year fixed mortgage rates have climbed from 3.11% to 4.42% in just the last 12 weeks.

Talking to Fortune, Devyn Bachman, vice president of research at John Burns Real Estate Consulting, opined, “If rates rise above 5%, you will price buyers out of the market… The higher rates could also discourage investor activity, which accounts for a large portion of home sales today.”

3) A much higher proportion of fixed-rate mortgages

In 2006, mortgage interest rate increases had spelled trouble for subprime mortgages. Many subprimes were on a variable mortgage rate borrowing arrangement and eventually catalyzed the 2008 financial crisis.

It does seem, so far, that the current situation is different. While keeping some buyers out of the market will help, 99% of the mortgages on the fixed-rate arrangement are a comfort.

Sean A. Stephens, Esq., CMB® 

Legal Disclaimer: The information provided on this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. No representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or availability to this information. Use of, and access to, this Blog or any of the links or resources contained within the site do not create an attorney-client relationship. Broker to Banker Consulting, LLC is not a law firm and does not provide legal services.

back to top
Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!