US home prices have soared to new heights and keep on climbing, and now some researchers and economists are saying they have seen signs of a housing bubble brewing.

Home prices are rising faster than market forces would indicate they should and are becoming "unhinged from fundamentals," according to a new blog post written by researchers and economists at the Federal Reserve Bank of Dallas.
Until recently, the possibility of a bubble wasn't widely supported. But after looking at housing markets across the US, the Fed researchers said new evidence is emerging.
"Our evidence points to abnormal US housing market behavior for the first time since the boom of the early 2000s," the researchers wrote. "Reasons for concern are clear in certain economic indicators ... which show signs that 2021 house prices appear increasingly out of step with fundamentals."

Bubble brewing

The behavior of homebuyers and sellers over the past two years has been anything but normal, the researchers pointed out. Prices are at record highs and continue to move higher because there has been record low inventory. Still, homebuyers keep buying. Interest rates fell to record lows during the pandemic, but that does not alone explain the housing market frenzy, they wrote.
Other factors have played a role in pushing the market into bubble territory, the Fed researchers wrote, including pandemic-related stimulus programs and Covid-19-related supply-chain disruptions and associated policy responses. The researchers specifically highlight the role of investors, who are aggressively buying up homes.
Investors now buy 33% of the homes in the US, which is a 5% larger share than the average over the past decade, according to John Burns Real Estate Consulting. The business of ibuying -- in which a company buys a home for cash to slightly fix it up and resell it again -- is only 1.7% of the national housing market in the last quarter of 2021, according to Zillow. But in some cities, the share of homes going to ibuyers is as high as 11%.

Silver linings

A lot was learned from the last housing crash, which has led to better early detection and warning indicators of housing bubbles, the researchers wrote. If these concerning trends continue, banks, policymakers and regulators ought to be better equipped to quickly react to avoid the most severe, negative consequences of a correction.
In addition, they wrote, there is no reason to expect any resulting correction would impact homeowners or the economy as significantly as the last housing crash. Americans are generally in better financial shape, homeowners have stronger equity positions and excessive borrowing is not as rampant as it was in the mid-2000s.
To read the full article please visit the site https://www.cnn.com/2022/03/30/homes/us-housing-market-bubble/index.html