It looks a lot like a housing bubble. How your local housing market compares to 2007, as explained by 4 interactive charts

Never more. That was the feeling among lawmakers as they came together to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The goal was to ban the subprime mortgages that fueled the housing bubble of the 2000s:that caused US home prices to skyrocket 84% between January 2000 and June 2006—and ultimately pushed the country into the deepest recession since the Great Depression.

Fast-forward to 2022, and once again we’re hearing talk of a “housing bubble.” The economist Robert Shiller, who predicted the last housing bubble in 2005Recently hinted that housing may be in another bubble. Economists at the Federal Reserve Bank of Dallas unnerved the real estate industry this spring after publishing an article headlined Real-time market monitoring finds signs a US housing bubble is brewing..” Why the renewed concern? In the last year alone, home prices have risen four times faster than revenue. Simple economic theory, which dictates that neither house prices nor incomes can outpace each other for long, tells us that’s not sustainable.

There is another reason why the bubbling conversation has suddenly resurfaced: the rise in mortgage rates—an increase from 3.2% to 6% in the last six months— means home buyers are finally feeling the brunt of the pandemic housing boomwhich boosted US home prices by 37% between March 2020 and March 2022.

To better understand where the housing market is, at least from a historical perspective, Fortune approached moody’s Analytics. The financial intelligence firm provided this publication with an exclusive look at its quarterly proprietary analysis of 414 regional US housing markets. The analysis runs between the fourth quarter of 1992 and the first quarter of 2022. (In May, Fortune analyzed a similar analysis conducted by the Real Estate Initiative at Florida Atlantic University).

The analysis carried out by moody’s The analyzes aimed to find out whether economic fundamentals, including local income levels, could support local home prices. Nationwide, Moody’s Analytics finds US home prices to be “overvalued” by 24.7%. In other words, US home prices are 24.7% higher than they would historically trade at given current income levels. While that doesn’t mean home prices are about to drop 24.7%, it does mean that, historically speaking, home prices have moved toward the upper limits of affordability. The last time it happened? During the housing bubble of the 2000s.

Now, let’s take a look at the data.

See this interactive chart on

Among the 414 largest regional housing markets in the country, Moody’s Analytics finds that 344 have home prices in the first quarter of 2022 that are “overvalued” by more than 10%. Among those places, 183 markets are “overvalued” by more than 25%, while 27 markets are “overvalued” by more than 50%.

This time around, the most “overvalued” home values ​​are in the Southwest, Mountain West, and Southeast markets that saw a flood of WFH workers during the pandemic. Boise and Phoenix, which were hot spots for expat Californians during the pandemic, are “overvalued” by 72% and 54%, respectively.

Looking ahead, Moody’s Analytics Chief Economist Mark Zandi says frothy house prices should be a drag on future house price growth. Over the next 12 months, Zandi predicts that year-on-year US house price growth will plummet from a record 20.6% rate to 0%. In significantly “overvalued” real estate markets like Boise and Phoenix, Zandi forecasts a 5% to 10% drop in home prices. Yeah, says Zandi the Federal Reserve’s campaign against runaway inflation has seen the pandemic housing boom turn into a “housing correction”. As proof, he points out increase inventory levels Y house sales fall.

But Zandi’s prediction goes by the board if a recession does manifest. If a recession occurs, Zandi predicts that US home prices would fall 5% year-over-year, while significantly “overvalued” housing markets would see, Zandi says, a 15% drop in home prices. % to 20%. (To see the 40 regional housing markets most vulnerable to falling prices, come here).

See this interactive chart on

It’s not just how expensive the house became, but how quickly it got there. The United States went from a historically affordable housing market to a historically unaffordable housing market in just 24 months. In the first quarter of 2020, only 81 of the 414 largest regional housing markets in the country were “overvalued” by more than 10%, according to Moody’s Analytics. Among those places, six markets were “overvalued” by more than 25%. While none were “overrated” by more than 50%.

How did things change so fast?

Instead of crashing the housing market, the pandemic actually helped spur perhaps the fiercest housing boom ever recorded. It was a perfect storm. Historically low mortgage ratesintroduced by the Fed’s response to the COVID-19 recession, they were too good to pass up. That saw investors rush into the housing market.. They were joined by administrative professionals who saw their jobs transition to remote work during the pandemic and were eager to move from crowded apartments in cities like New York and Chicago. The pandemic also coincided with the five-year window (between 2019 and 2023) when millennials born during the five oldest birth years of the generation (between 1989 and 1993) reached the maximum first-time homebuying age of 30. That surge in demand simply outpaced housing inventory, which was already in decline even before the pandemic hit. Cue record house price growth.

See this interactive chart on

Among the 414 largest regional housing markets in the country, Moody’s Analytics finds that 261 markets were “overvalued” by more than 10% in the first quarter of 2007. Among those places, 102 markets were “overvalued” by more than 25%. While 10 markets were “overvalued” by more than 50%.

Those 2007 numbers are eerily similar to the 2022 numbers. But there’s one big difference: the locations of “overvalued” markets.

The pandemic housing boom has been most pronounced in the Southwest, Southeast, and Mountain West. The markets in Nevada, Arizona, Idaho, Texas, Utah, North Carolina, and Florida have all exploded. During the last boom, the regional picture was quite different. While Arizona, Florida, and Nevada were also leaders during the housing boom of the 2000s, so were the Northeast and California markets. This time, markets in the Northeast and California have seen relatively more moderate booms, while Texas, which was largely overlooked by the bubble of the early 2000s and subsequent crashit is between the epicenters of the pandemic housing boom.

That markedly different regional story can be seen in Moody’s Analytics. In the first quarter of 2007, Moody’s Analytics rated the San Francisco and New York metropolitan areas as “overvalued” by 26% and 29%, respectively. Through the first quarter of 2022, San Francisco and New York are “overvalued” by only 11% and 7%.

Meanwhile, Phoenix and Las Vegas (which were “overvalued” by 36% and 40% in 2007) are again significantly “overvalued” (this time by 54% and 53%).

See this interactive chart on

It’s very clear: Historically speaking, we’ve once again seen US home prices move toward the upper limits of affordability. That is the third time in the last half century. After reaching similar levels of affordability during the inflationary 1970s, US house prices began to decline in “real” terms (that is, house price growth minus inflation), while Nominal house prices continued to grow. Meanwhile, the other period (namely the 2008 housing bubble burst) saw house prices plummet in both “real” and nominal terms.

Even if there is a nominal drop in house prices this time, it’s unlikely to be like 2008. At least that’s according to research by economists at the Dallas Federal Reserve. While the Dallas Fed found that home prices are once again detached from underlying economic fundamentals, it also found that homeowners are in much better shape financially this time. For that reason, the Dallas Fed doesn’t think a housing correction in 2022 or 2023 could deliver the dire results it did during the 2008 housing crisis.

Having said that, the housing boom of the pandemic it has certainly made many housing economists uncomfortable.

“This could be a housing bubble. The evidence suggests it looks like a housing bubble. A bit like a duck. It walks like a duck, it looks like a duck, it certainly could be a duck.” Enrique Martínez-García, senior research economist at the Dallas Fed, said Fortune back in may. While he won’t call this a housing bubble, he says it’s time to “raise awareness of the potential risks [that] housing poses”.

If you’re hungry for more housing data, follow me on Twitter a @NewsLambert.

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