The U.S. housing market is once again under scrutiny, with some experts warning of an unsustainable bubble that could rival or even surpass the infamous crash of 2006.
Nick Gerli, CEO of Reventure Consulting, sounded the alarm on X, formerly Twitter, pointing to inflation-adjusted home prices that have risen to nearly double their 130-year average. “We are in the biggest housing bubble of all time,” Gerli said in a tweet thread, highlighting the gap between home values and historical norms.
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Gerli’s analysis paints a disturbing picture. Only twice in U.S. history have home prices reached such dizzying heights relative to long-term averages — in 2006 and now.
The implications, he argues, are clear. “This situation is not sustainable. House prices have to crash, or inflation has to go through the roof. Or maybe a combination of the two.”
Gerli’s assessment comes as the housing market appears to be at a crossroads. Recent data from the S&P CoreLogic Case-Shiller Home Price Index shows that while price increases are slowing, with an annual gain of 5.9% in May compared to 6.4% in April, home values continue to set records.
Lisa Sturtevant, chief economist at Bright MLS, told Forbes that she sees pressure on buyers. “Affordability is the single biggest constraint on the housing market,” she said, predicting a move toward a more balanced market later this year, with continued competition among potential homeowners.
According to Gerli, the crux of the issue is the relationship between house prices and incomes. Current house prices are at a multiple of 4.5 times income, a level seen only twice before – during the bubble of 2006 and in the early 1950s. He points out that the solution in the 1950s came from a decade of stagnant house prices combined with robust income growth – a scenario he finds unlikely in the current economic climate.
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Not all regions are being hit equally hard, however. Gerli said states like Florida, Tennessee and Texas are epicenters of the bubble. In those areas, home values have dramatically decoupled from local incomes. On the other hand, states like New York and Illinois are showing more modest overvaluation, resulting in tighter inventory as more buyers are able to enter those markets.
The path forward is uncertain. Keith Gumbinger, vice president at HSH.com, an online mortgage company, told Forbes that a housing recovery would require an increase in inventory and a gradual cooling of mortgage rates. “It’s better for rate cuts to come at a measured pace, gradually improving buyer opportunities over a longer period of time, rather than all at once,” he said.
Still, inventory shortages persist, according to Zillow analysis, with inventory levels 33% below pre-pandemic averages.
Whether it’s a bubble about to burst or a new era of homeownership, many housing markets are still too expensive for the average American.
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This article Housing Market in ‘Biggest Bubble Ever,’ Reventure CEO Warns: ‘This Situation Is Not Sustainable’ originally appeared on Benzinga.com
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