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US central bank warns of housing bubble — RT World News


The Fed said the rise in home prices was “flat” compared to market fundamentals, but the correction would not be as severe as the 2007-2009 crisis.

The Federal Reserve Bank’s Dallas branch warned of a “Creating a Housing Bubble in America,” says that prices have risen beyond levels demonstrated by market fundamentals, creating the risk of a market crash.

“There is growing concern that U.S. home prices are falling apart from fundamentals again,” Fed economists said in a study report posted earlier this week. “Our evidence points to unusual US housing market behavior for the first time since the boom of the early 2000s.” they added.

That boom led to a market crash, triggering the 2007-2009 global financial crisis. However, if the current bubble burst, it won’t cause much of a recession because consumers aren’t as financially affluent as they were in the early 2000s, and over-indebtedness is unlikely to spur growth. current prices, the Fed said.

The bank believes that the possibility of a bubble is partly due to low interest rates and imbalance of supply and demand. The median U.S. home price has increased 14% over the past year, to $405,000, following a similar increase in 2020, according to a report this week. Realtor.com. For every year a home goes up for sale during the Covid-19 pandemic in 2020, only two listings are available today.

And just as they did in the early 2000s, buyers are betting that prices will always rise, so they have to compete for available homes or miss out on the real estate wave. Expensive “May have spurred a wave of fear-of-miss-out excitement regarding new investors and more active speculation among existing investors,” Fed said.

The Fed uses a statistical model to monitor buyer interest and identify overheated markets, with a 95% confidence level typically signaling “Unusual explosive behavior.” The measure currently stands at 115%, marking the highest level since around 2007. The bank has observed housing prices decouple from market fundamentals by other measures, including rates. price-to-rent and price-to-income.

The 2007-2009 crisis occurred when price increases stalled, pulling the rug out from mortgage-backed securities that were given to buyers who could not afford to pay. A potential bubble burst this time could be mortgage rates, which are rising at their fastest pace in more than a decade and at a three-year high, sending many potential buyers out of the market.

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