Historically speaking, the ongoing housing boom is an anomaly. Over the past two years, U.S. home prices have soared 34.4%—including 19.8% over the past 12 months. For perspective, home prices have risen on average 4.6% per year since 1987.
While the hot labor market has put upward pressure on incomes—with private sector wages up 4.8% over the past year—it isn’t rising fast enough to account for the uptick in home prices. That disconnect has many in the real estate industry on edge. A housing market that has become detached from economic fundamentals also has more economists posing the bubble question: Are we staring down another 2008-like housing bust?
That’s something economists at Zillow have been researching. On Monday, Zillow published a paper declaring that we are not inching toward a housing bubble or crash. They also argue that housing bubble fears are actually making matters worse and could drive home prices even higher.
“The expectation of another [housing] crash could contribute to keeping homes so unaffordable. Builders have been firing on all cylinders, and with more homes under construction than any time since 1973, they understandably feel exposed in the event of a housing downturn. If they trim their construction plans out of caution, we will miss out on one of the best hopes we have for net new inventory on the market, and the inventory crunch that’s helped push prices up will persist for longer than expected,” write the Zillow researchers.
Simply put: Zillow researchers think if homebuilders reduce production out of housing crash fears, it could keep inventory levels suppressed. Of course, the lack of inventory has been among the major drivers of the ongoing housing boom. The fact that home shoppers far outnumber homes for sale gives buyers little choice but to engage in bidding wars.