When you hear people say that the current housing market is like 2008 all over again, you may want to remind them of the huge differences between this market and that one.
The previous economic expansion, from 2010-2019, wasn’t a housing bubble. Quite the opposite: In that cycle we had the weakest housing recovery ever, even with the lowest mortgage rates during the longest economic expansion ever. When you don’t have a boom in housing market demand, it’s hard to have an epic bust.
Regarding the current housing market, I am on record expressing my concern about prices overheating. Because of this I am calling this the unhealthiest housing market post-2010. But is it a bubble? Bubbles don’t typically occur in the same sector in back-to-back cycles, so although prices are hot, I believe the price increases don’t warrant the housing bubble label due to the lack of bubble-driven sales growth.
There are several important reasons why the market today is materially different than the bubble-forming market of 2005.
First, a bubble needs speculation demand and this generally coincides with excess leverage. From 2002 to 2005 we experienced a credit boom due to the rapid increase in borrowing for speculation purchases. We were able to ramp up demand and feed the credit boom by offering higher risk, exotic loans. Pretty much anyone could get one of those loans.