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Are We in Another Housing Bubble? This Time It Looks a Lot Different

"I suppose sequels are inevitable for a writer of a certain age." - John Updike

The COVID recession impacted many segments of the U.S. economy, but the housing market sure was not one of them. In fact, boosted by record low interest rates, thousands of dollars of stimulus cash and the fact that wealthier consumers were mostly able to continue working remotely affecting their employment relatively little, home sales and prices have gone through the roof. Despite a recession that was the swiftest and steepest on record, the housing market managed to accelerate over the past year.

Since the official beginning of the recession in February 2020, the Case-Shiller U.S. National Home Price Index has risen by more than 14%.

Part of the reason for the surge in home prices is the sheer number of people competing for a limited supply of houses. It is a supply and demand issue. A single-family home may receive dozens of offers in a single weekend. Some realtors that I work with will not even write up an offer unless it is above the asking price. I have clients that are putting offers in for 5-15% above asking that are not even being considered. Today, the sale price of the average home is 102% of the list price.

Both new and existing home sales have come down off their January 2021 peaks, but that could simply be a function of a lack of supply, not necessarily a slowing of demand. With prices still rising and competition especially fierce, I think it is probably safe to say that the demand is still there.

This, of course, brings up the question of whether or not we’re entering another housing bubble. Naturally, the comparison is the financial crisis from more than a dozen years ago where default rates went through the roof and nearly collapsed the entire financial system in the process. It’s important to remember that the financial crisis was more of a true black swan event and isn’t likely to be repeated soon given how relatively fresh it is in the minds of consumers. Let us put the housing market of 2008 side-by-side with the current 2021 housing market to see how similar they really are (spoiler alert: not that similar).

Interest Rates

Let’s start with one of the simpler factors to explain in today’s market. Borrowing costs are significantly cheaper than they were during the financial crisis. In 2008, the average 30-year mortgage rate was in the 6-7% range. Today, a 30-year mortgage is still around 3%. Lower interest rates mean lower monthly payments and that tends to bring a lot more buyers into the market. Given what we are seeing with the number of offers being made on just about every house on the market and how quickly they are being sold, it looks like this is certainly a contributing factor.

Housing Supply

Today, houses are selling like hotcakes and there’s simply not enough supply to keep up with demand. The lead-up to the financial crisis was actually characterized by an excessively abundant supply of houses available, not a scarcity.

To set a baseline, a 6-month supply of homes available for sale is considered a balanced housing market. Here are some numbers from the National Association of Realtors (NAR) for how the housing market looks today:

  • April unsold inventory is at 2.4 months, up slightly from the 2.1 month reading in March, which is the lowest number recorded since the NAR began tracking this data back in 1982.

  • That number is down significantly from the 4.0 month reading from April 2020.

  • Average time on the market for properties was 17 days in April, down from 18 days in March and from 27 days in April 2020.

  • 80% of homes sold in April 2021 were on the market for less than a month.

Those numbers show a significantly higher demand in today’s market than what was experienced in 2008. In the two years prior to the bursting of the housing bubble, unsold inventory sat at around a 5-month supply. Just prior to the financial crisis, that number was all the way up to 11 months. With so much supply on the market and conditions beginning to deteriorate quickly, home prices had almost no choice but to correct significantly.

Subprime Lending

One of the root causes of the financial crisis was financial institution lending practices. As banks and mortgage brokers tried to ratchet up sales and commissions, they completely abandoned any appearance of loan qualifications. Ninja loans, an acronym derived from “no income, no job, no assets”, became a popular term. With the high interest rates that could be charged on these subprime loans, financial institutions were more than willing to lend this money considering most people believed that 1) mortgage default rates are normally very small, 2) home prices would continue rising and 3) falling rates meant borrowers could always refinance. Of course, that turned out not to be the case.

Today, lending requirements have tightened immensely. Lending institutions tend to mostly stay away from the subprime market, a notion that was strictly adhered to (and then some) during the COVID recession. Many lenders now tend to err on the side of caution and banks are forced to remain well-capitalized in order to ensure they can survive another potentially adverse event.

Millions of New Potential Buyers

The millennial generation is about to enter the housing market in a big way. The group that is loosely defined as those in their early 20s to late 30s are right at the time of their life where they typically become homebuyers.

The low interest rate environment has almost certainly created an “act now or you’ll miss out” mentality that has dragged a lot of younger folks off the sidelines. The number of buyers entering the market is expected to outweigh the number of people exiting the market and that will continue to create a bit of an imbalance that will favor sellers.


Have home prices gotten a bit overextended? Perhaps, but looking at the evidence, I don’t think there’s a whole lot to suggest that we’re in the midst of (or even nearing) another bubble. Whereas the financial crisis was preceded by a period that featured a lot of sellers and unqualified buyers, the current market features a lot of buyers with a lot of cash on hand, limited supply and record low interest rates. If the current environment begins to shift and we see that supply/demand curve normalize while home prices are still soaring, we can revisit this discussion. For now, I don’t think we’re looking at any particularly excessive risk here.

If you have any questions or comments, feel free to use me as a sounding board.

Kurt S. Altrichter, CRPS®

Fiduciary Advisor | President

Direct: 952.828.5336

Email: |


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