What is the outlook for the US housing bubble in the coming months?

The Year of the Housing Bubble?

Gustan Cho Associates are mortgage brokers licensed in 48 states

Is a housing bubble developing in the US? Will home prices drop soon? 2023 has been a crazy year for the housing market. In this article we will discuss the following:

  • Will home prices keep on going up?
  • Historically, what goes up normally comes down.
  • Home prices have been skyrocketing in the past several years without a correction.
  • Is a housing bubble in the future?

Many home buyers have been sitting on the sidelines for many months. Some have been sitting on the sidelines for years. We will keep our viewers updated on this breaking news series.

How the Coronavirus Pandemic Affected the Housing Market

As we emerge from the COVID pandemic, housing markets in much of the country are going little bananas.  We have seen record levels of appreciation and that’s causing concern about the stability of the housing sector. No one wants a repeat of the 2008 housing crisis — should we be concerned? In this blog, we will detail current housing market trends as well as where we think the housing market is headed.

Is There a Housing  Bubble?

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In much of the country, home inventory is very low and demand for homes is high. That’s very frustrating for buyers, especially first-timers trying to compete with cash buyers and other investors. Will this hot market last, or will it burst like a fragile bubble, leaving those who paid top dollar holding the bag? Many experts agree that home prices accelerating at this pace could be worrisome.

Doug Duncan, the chief economist at Fannie Mae has acknowledged concerns about the stability of the housing market. He admits that big run-ups in home prices have been a recipe for disaster in the past.  But is that what’s happening here?

Real estate prices historically increase at 4% to 5% annually on average. But they don’t do this steadily every year. Instead, prices can spike, fall, stagnate, correct, and bounce. What goes up often comes down. and vice versa. It’s not uncommon for hard-hit areas one year to make huge gains the next, or for hot markets to correct themselves. If this runup corrects itself gradually, it won’t damage the economy.
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Experts: Housing Bubble Unlikely

New research from Clever Real Estate may help us draw conclusions about the near-term future of real estate in the US. There are a few findings that point to a gradual slowing of price increases and a predictable increase in inventory. Only 10% of those who planned to sell in 2022 were able to do so. While 22% decided not to sell at all, the rest do intend to sell in 2023 — most likely listing in May, June, or September. This will increase the number of homes for sale, which will take some pressure off prices.

While 61% of renters had planned to buy this year, about two-thirds of would-be buyers decided to hold off because of the pandemic. That means less competition for entry-level homes when they do come on the market.

One in four renters reported missing at least one rent payment in the last year. That means they will have difficulty financing any new purchases in 2023 and will likely keep them out of the market until they clean up their credit. Most renters also reported living paycheck to paycheck, which makes qualifying to buy a home unlikely. While builders contributed to the shortage by pulling back during the pandemic, they are making up for lost time now. In nine-to-12 months, completed homes will be listed, and increase inventory. However, there is some cause for concern. The cost of building materials has skyrocketed.  Rising wood prices have added about $25,000 to the cost of an average home.

Surging Housing Market and Skyrocketing Mortgage Rates

The National Association of Realtors estimates that there is a 2.1-month supply of homes for sale and more buyers than sellers. A normal, balanced market has roughly equal buyers and sellers and a six-month supply of homes for sale. This supply and demand equation does not indicate prices will sharply drop in the future. There is almost no way that we’ll have an oversupply of houses any time soon. Builders cannot build enough homes. They are building as fast as they can, but there are bottlenecks in the supply chain, and homes are not built overnight.  Eventually, builders will help bring the housing inventory back to normal levels.

Historic High Rates and Surging Inflation

In January 2023 interest rates hit an all-time high! Since then, interest rates have kept on increasing. Fannie Mae and Freddie Mac have reported average rates of 7.0%.  Lower interest rates give buyers less home buying power. Although the slight uptick in rates has put a damper on the refinance market, the purchase market is still incredibly strong. Many Americans are priced out of the housing market due to high-interest rates to purchase a home. With additional money applied towards the principal balance of your home compared to a higher interest rate, this can be an excellent home buying opportunity before rates go higher.

Mortgage Reforms Mean No 2008 Repeat

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Mortgage guidelines today are incredibly strict. Unlike in 2007, the NINJA (no income, no job, no assets) loans are no longer available. This allowed thousands of Americans to purchase a home they more than likely could not afford. There were also adjustable rates on many of these NINJA loans.  If you have not seen the movie The Big Short, we suggest you check it out. Post-recession mortgage reforms mean borrowers don’t get loans they can’t afford. The foreclosure avalanche that occurred in 2008-2012 won’t happen again. And that’s one more check and balance that should prevent a housing bubble in 2022 and 2023.

Robust Economy Should Prevent Bubble

Foreclosures are currently on hold. Due to the CARES ACT, it is difficult for most lenders to foreclose because most loans are either government-backed or owned by government-sponsored entities Fannie Mae and Freddie Mac. In the last real estate crash, there were millions of foreclosures flooding the housing market, creating a dip in home values. Most homeowners in 2023 have a comfortable equity position and would be able to sell to willing buyers if they had to — foreclosure is not necessary. Values will hold, unlike 2008, and there will be no housing crisis.

Buying a Home in a Competitive Housing Market

The reasons above show that the housing market is in good standing. We hope this continues to be the case. We hope to continue to see rising home values across the nation. Every day I hear a new story about the competitive markets throughout the nation. There are even builders offering current clients cash buyouts to cancel their transactions. In Arizona, one builder offered $15,000 to current buyers to cancel their transactions. They will then turn around and sell the home to somebody else for $50,000 more. If the buyer decides not to cancel, they are walking into a brand-new house with instant equity. The stories go on and on. Get your home purchase with us. 

Getting a Mortgage in a Hot Market

When competing for homes with cash buyers, investors, and hungry first-timers, you need every advantage you can get. A full preapproval (not just a prequalification) is nearly as good as cash. Get your preapproval from Gustan Cho Associates today and attach a copy of your preapproval letter to every offer you submit. We have many mortgage products that banks do not offer. In addition, we impose no lender overlays on our qualified mortgage products. We are offering NON-QM mortgage options to our self-employed borrowers that are highly competitive. If you are in the market to buy or refinance a home, please call Mike Gracz on (800) 900-8569 or send an email to gcho@gustancho.com. We are available seven days a week to answer your mortgage-related questions and look forward to helping you and your family secure your next mortgage loan.

Updated Blog: Will There Be a 2024 Housing Bubble

If you have been following our blog post, you know how crazy the housing market is today. Since the start of the pandemic, the housing market was briefly shut down. The housing and mortgage market has since re-opened. The housing and mortgage industry is busier than ever. Many individuals are scared we could be in a housing bubble. One of the most searched keywords on the internet is will there will be another real estate crash in the near future. In this updated blog, we will piggyback on some recent housing information. We will discuss the current trends of the housing market.

The Strong Housing Impact of the Aftermath from the Pandemic

The COVID-19 coronavirus outbreak has created one of the strongest housing markets in history. Many individuals would think a pandemic would have the opposite effect on a housing market. This holds true especially when we were expecting a recession. The improving economy, as well as millennials entering their peak homebuying years, compounded with historically low-interest rates, has created a residential housing boom.

The downside to this housing boom is a competitive housing market with incredibly low inventory levels. The current supply of homes is at an all-time low. We are at below levels. We have not seen levels like these since the beginning of the century.

It is estimated that many housing markets have a one-month supply of homes when a six-month supply is average. A one-month supply means, if no new listings were added to the market, all homes would be sold in just one month.  In the past, a strong growing market like Denver Colorado had a two-month supply. Now, most of the country is below that number. According to the National Association of Realtors, existing-home sales decreased for the fourth straight month in January 2024. These decreases are fractional compared to yearly data. Showing the housing market is still incredibly strong. Get your home purchase with us. 

Strong Housing Numbers Year Year After Year

New home sales are up over 40% from one year ago.New home sales are up over 40% from one year ago. That is highly impacted by the nationwide shutdowns. Pending home sales reached the highest reading during the month of May since the calendar year 2005.

All four regions of the country showed growth year over year and month over month growth. Pending home sales increased by over 8% in the month of May 2023 and were up over 13% from May 2022. Lack of inventory has skewed these numbers slightly.

The median home price nationwide is now above $350,000 which may not sound too high. When you consider this is a 15.2% increase from just the previous year. A jump like that will have many economists scratching their heads.

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Buying New Construction News

What about new construction homes? New construction homes have also seen an increase during the pandemic. Unfortunately, this does allow builders to raise prices. Estimates show new house sales are up 5.8% year to date for the calendar year 2023. As builders are raising prices. This is not all just profit. Building costs are through the roof causing longer than normal building times. There is unpredictability in the construction supply chain that has impacted builders. Many builders are focusing on building higher-end homes instead of entry-level homes, mainly driven by demand and profit margins.

Skyrocketing Home Prices

Despite the soaring lumber prices, demand for new construction continues to outpace supply. This is creating shortages in just about every building material. While the Canadian border remains closed to civilians, they are now allowing lumber exports to cross more easily.

This should help the new construction sector. Besides raw material shortages, there is also a labor shortage. A labor shortage is a huge topic negatively impacting most industries across the nation.

Weekly home sales data gives us plenty of information to dissect. The weekly home sales have shown us the national median price has tapered after reaching a peak in early January 2024. The average time on the market across the nation is 39 days. That means many houses are selling on the first day they are listed and most within the first week of being listed.

Increase of Inventory Should Stabilize Skyrocketing Home Prices

There could be some light at the end of the tunnel because market trends show more sellers than normal are planning on selling their houses in the next 12 months. This should increase supply nationwide and create more stability in the housing market. The bidding wars may slow down in some of the hotter housing markets. With all this data you might be asking what happens next? Mortgage rates are still hovering near all-time lows despite announcements recently made by the Federal Reserve. Mortgage experts are mixed with future predictions. Believe it or not, about 50% of mortgage professionals in a recent poll stated they believe interest rates will go down or stay the same in 2024.

When Is a Good Time To Purchase a Home

Fannie Mae‘s national housing survey sent out in the calendar month of May reported that 35% of respondents said it was a good time to buy a house. This is the lowest number in the survey’s history. Many Americans think this housing market is going to burst.  On the flip side, 67% of respondents said it’s a great time to sell a house. Freddie Mac predicts home prices will continue to rise by 6.6% for 2022 and 4.4% in 2023. On average, home prices rise by roughly 3% annually. So they are predicting continued growth for the next year and a half.


Millennials currently make up the largest share of homebuyers in the United States. Data shows millennials are waiting longer in life to get married and buy houses, and that time could be now. Millennials will be first-time homebuyers and may not be familiar with the pre-pandemic housing market.

Home prices are higher now than the last housing bubble in 2008. The top five states with the highest annual house appreciation were Idaho, Utah, Arizona, New Hampshire, and Connecticut. Idaho saw over 23% appreciation in Q1 2022.

While we just discussed numerous trends in the housing market, please contact your trusted professionals before making any major investment. Homeownership is one key pillar in long-term financial success. The ownership of real estate has also helped create generational wealth. Passing equity or a free and clear house down to your children is a very common trend in America. While all these housing trends are subject to change, when home prices increase, rent costs also increase. Getting into the housing market now may be difficult but financially rewarding. We encourage you to reach out to Gustan Cho Associates for mortgage assistance. The team at Gustan Cho Associates are mortgage professionals without lender overlays. Gustan Cho Associates is  here to assist you through the mortgage process and answer any questions you may have. Please reach out to Mike Gracz on (800) 900-8569 or via email, gcho@gustancho.com for personal one on one help!

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