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Housing Bubble 2023: The Hard Truth Behind the Noise
The housing market is undeniably in a bubble right now. How can we be so sure? Let’s look at the data.
We can all agree there was a housing bubble in 2008. The dramatic rise and fall of prices then is clear as day in the data. Today’s bubble has eerily similar characteristics, but is even bigger.
Measures of home prices, rents, and incomes historically moved in sync – until the early 2000s. That’s when home prices diverged, detached from incomes and rents. The same thing happened in the lead-up to 2008. After the crash, home prices realigned with incomes and rents again, until around 2012. Then prices took off once more.
This time, the divergence has continued getting wider for over a decade. Home prices are now nearly twice as detached from incomes and rents as they were at the height of the 2008 bubble.
The data leaves little doubt we’re in another housing bubble. The only question is how big it will get before it bursts. Based on past trends, we could see a 20-25% price correction to bring things back in line with fundamentals.
The bubble probably still has room to inflate before that happens. But make no mistake – gravity will eventually take over. The housing market will correct, as it has many times before. Patience and perspective are key for navigating the noise along the way.
The story told by key housing market indicators over decades is clear. There are always statistics and narratives claiming “this time is different.” But the fundamentals say otherwise. Home prices cannot detach permanently from rents and incomes. What goes up, must come down.
The bubble brings unease. But its inevitable end will bring opportunity back to the housing market. For now, rely more on data than opinions. The numbers don’t lie, even if their truth brings hard truths.
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