Home shoppers who paused their search last year, in hopes that 2022 would be friendlier, aren’t feeling great: We learned on Tuesday that year-over-year U.S. home price growth accelerated to 19.2% in January. That’s up from the 11.3% uptick posted at the same time last year. The latest jump is also well above the peak annual rate (14.5%) posted in the lead-up to the 2008 housing bubble.
That stubbornly hot housing market is beginning to raise more eyebrows. Look no further than a paper published this week by the Federal Reserve Bank of Dallas titled “Real-time market monitoring finds signs of brewing U.S. housing bubble.” The Dallas Fed researchers came to that conclusion after comparing U.S. home prices to underlying economic data.
“Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators…house prices appear increasingly out of step with fundamentals,” wrote the Dallas Fed researchers.
Amid the pandemic, historically low mortgage rates and a demographic wave of first-time millennial homebuyers helped to spur the ongoing housing boom. However, that alone can’t explain the explosion in home prices. Another factor, argues the researchers, could be “fear-of-missing-out”—or home shoppers who think they could be left behind if they don’t rush into the market. That’s concerning, considering that FOMO home buying was a key ingredient in the last housing bubble.