Back in March, economists at the Federal Reserve Bank of Dallas put the real estate industry on high alert when they published a paper titled ’’Real-time market monitoring finds signs of brewing U.S. housing bubble.’’It’s one thing for Redditors on the r/REBubble board to pontificate about housing bubble theories. But when a Federal Reserve bank engages in bubble talk, that’s alarming.
On Tuesday, we learned the year-over-year home price growth rate hit an all-time of 20.6% between March 2021 and March 2022. While things in April and May finally began to cool down, home prices still remain well above levels hit in the final months of last year.
in the house price to income ratio created by the Dallas Fed. It’s an index, with the value of 100 indicating a housing market exactly equal to the 2005 baseline year. The finding? In the fourth quarter of 2019, the index sat at 83.1. The Dallas Fed paper found that by the fourth quarter of 2021, the pandemic housing boom had pushed the index all the way to 94.16.
Where do we stand now? In the first quarter of 2022, that house-price-to-income ratio rose to 95.97, the highest reading since the fourth quarter of 2004. It’s still a ways off from the 102.64 peak of the housing bubble in 2006, but historically speaking, we’ve moved into a period where home prices are nearing the limits of what incomes can afford. The last time this happened, home prices eventually snapped back.
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