Fed signals lower hikes?

 

By Lindsay Dunsmuir and Ann Saphir

(Reuters) -Two of the Federal Reserve's most vocal hawks on Thursday said they would support another 75 basis-point interest rate increase later this month but a downshift to a slower pace afterward, even as both downplayed the risk of higher borrowing costs pushing the U.S into recession.

https://finance.yahoo.com/news/feds-waller-backs-75-bps-173528610.html

"I am definitely in support a doing another 75 basis-point hike in July," Fed Governor Christopher Waller said during a discussion with the National Association for Business Economics.

"Probably 50 in September," Waller added, "and then after that we can debate whether to go back down to 25s or if inflation just doesn't seem to be going down, we have to do more."

At a separate event in Little Rock, Arkansas, St. Louis Fed President James Bullard also said a 75 basis-point hike at the U.S. central bank's next policy-setting meeting on July 26-27 would "make a lot of sense."

The move would bring the policy rate to a range of 2.25%-2.5%, about a percentage point short of the 3.5% level Bullard said he continues to advocate for by the end of the year. Stretched out over the three meetings left after the one this month, his view also points to a slowdown in the pace of rate hikes, though he did not map that out explicitly.

The Fed last month raised its benchmark overnight interest rate by three-quarters of a percentage point, its biggest hike since 1994, as it stiffens its resolve to tame stubbornly high inflation without causing too much economic harm.

Waller's comments had an immediate impact on market expectations, with investors reducing bets on the Fed hiking rates by 75 basis points in September to 13%, down from 23% before he spoke, according to an analysis of Fed funds futures contracts by CME Group, which shows an 80% probability of a 50 basis-point rise at that meeting.

Rate futures traders continue to expect a 75 basis-point hike this month.

OVERBLOWN FEARS

Rising interest rates, inflation and tighter financial conditions have darkened the economic outlook, with recent data on consumer spending and factory output showing signs of a slowdown and sparking recession fears.

Waller was mostly unmoved, citing services data as well as a strong labor market although he acknowledged there are dangers.

"I personally think some of the fears of a recession are overblown," he said. "We're going to get inflation down. That means we are going to be aggressive on rate hikes and we may have to take the risk of causing some economic damage, but I don't think, given how strong the labor market is right now, that that should be that much," he said.

Raising rates to 3% or slightly higher will not send the unemployment rate, now at 3.6%, to something dramatically higher like 6% or more, he said.

Bullard likewise said that labor markets, currently nearly as healthy as they have ever been, could cool quite a bit and still remain strong, and that his "base case" is for a softish landing where growth slows from its soaring pace last year. "Some people are mistaking that for recession" he said.

While GDP, the most widely cited measure of U.S. output, fell in the first quarter and looks on track to fall again this quarter, output by a different measure more reflective of the labor market has remained positive and is expected to stay so.

Economists expect a fresh read of the U.S. labor market on Friday to show employers added 268,000 jobs in June, fewer than the prior month but enough to suggest continued economic growth rather than a stalling of it, let alone a contraction.

Bullard said he expects inflation to fall rapidly as the Fed puts in its rate hikes, though most of the decline will come next year, not in 2022. Bullard said that once the Fed gets rates to 3.5%, it should assess the state of inflation and inflation expectations, and then could tweak policy to suit, including potentially by cutting rates.

Strategies to invest in RE

Buying and owning real estate is an investment strategy that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.

https://www.investopedia.com/investing/simple-ways-invest-real-estate/

Though a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can, in turn, take out second mortgages on their homes in order to make down payments on additional properties. Here are five key ways investors can make money on real estate.

Aspiring real estate owners can buy a property by using leverage, paying a portion of its total cost upfront, and paying off the balance over time.
One of the primary ways in which investors can make money in real estate is to become the landlord of a rental property.
People who are flippers, buying up undervalued real estate, fixing it up, and selling it, can also earn income.
Real estate investment groups are a more hands-off way to make money in real estate.
Real estate investment trusts (REITs) are basically dividend-paying stocks.
1:40
5 Simple Ways To Invest In Real Estate

1. Rental Properties
Owning rental properties can be a great opportunity for individuals who have do-it-yourself (DIY) renovation skills and the patience to manage tenants. However, this strategy does require substantial capital to finance upfront maintenance costs and to cover vacant months.

Pros
Provides regular income and properties can appreciate

Maximizes capital through leverage

Many tax-deductible associated expenses

Cons
Managing tenants can be tedious

Potentially damage property from tenants

Reduced income from potential vacancies

According to U.S. Census Bureau data, the sales prices of new homes (a rough indicator for real estate values) consistently increased in value from the 1960s to 2006, before dipping during the financial crisis.1 Subsequently, sales prices resumed their ascent, even surpassing pre-crisis levels.23 The long-term effects of the coronavirus pandemic on real estate values remain to be seen.

Sales prices of new homes chart
Source: Survey of Construction, U.S. Census Bureau

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).4
2. Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) are ideal for people who want to own rental real estate without the hassles of running it. Investing in REIGs requires a capital cushion and access to financing.

REIGs are like small mutual funds that invest in rental properties.5 In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company, thereby joining the group.

A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.

A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you'll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.

Pros
More hands-off than owning rentals

Provides income and appreciation

Cons
Vacancy risks

Fees similar to those associated with mutual funds

Susceptible to unscrupulous managers

3. House Flipping
House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed.

This is the proverbial "wild side" of real estate investing. Just as day trading is different from buy-and-hold investors, real estate flippers are distinct from buy-and-rent landlords. Case in point—real estate flippers often look to profitably sell the undervalued properties they buy in less than six months.

Pure property flippers often don't invest in improving properties. Therefore, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they'll eliminate the property from contention.

Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to continued, snowballing losses.

There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time.

Pros
Ties up capital for a shorter time period

Can offer quick returns

Cons
Requires a deeper market knowledge

Hot markets cooling unexpectedly

4. Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is best for investors who want portfolio exposure to real estate without a traditional real estate transaction.

A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock.6

A corporation must payout 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.7

Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the aforementioned types of real estate investment, REITs afford investors entry into nonresidential investments, such as malls or office buildings, that are generally not feasible for individual investors to purchase directly.

More importantly, REITs are highly liquid because they are exchange-traded trusts. In other words, you won’t need a real estate agent and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.

Finally, when looking at REITs, investors should distinguish between equity REITs that own buildings and mortgage REITs that provide financing for real estate and dabble in mortgage-backed securities (MBS). Both offer exposure to real estate, but the nature of the exposure is different. An equity REIT is more traditional in that it represents ownership in real estate, whereas the mortgage REITs focus on the income from real estate mortgage financing.

Pros
Essentially dividend-paying stocks

Core holdings tend to be long-term, cash-producing leases

Cons
Leverage associated with traditional rental real estate does not apply

5. Online Real Estate Platforms
Real estate investing platforms are for those who want to join others in investing in a bigger commercial or residential deal. The investment is made via online real estate platforms, which are also known as real estate crowdfunding. This still requires investing capital, although less than what's required to purchase properties outright.

Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments with not much money.

Pros
Can invest in single projects or portfolio of projects

Geographic diversification

Cons
Tend to be illiquid with lockup periods

Management fees

Why Should I Add Real Estate to My Portfolio?
Real estate is a distinct asset class that many experts agree should be a part of a well-diversified portfolio. This is because real estate does not usually closely correlate with stocks, bonds, or commodities. Real estate investments can also produce income from rents or mortgage payments in addition to the potential for capital gains.

What Is Direct vs. Indirect Real Estate Investing?
Direct real estate investments involve actually owning and managing properties. Indirect real estate involves investing in pooled vehicles that own and manage properties, such as REITs or real estate crowdfunding.

Is Real Estate Crowdfunding Risky?
Compared to other forms of real estate investing, crowdfunding can be somewhat riskier. This is often because crowdfunding for real estate is relatively new. Moreover, some of the projects available may appear on crowdfunding sites because they were unable to source financing from more traditional means. Finally, many real estate crowdfunding platforms require investors' money to be locked up for a period of several years, making it somewhat illiquid. Still, the top platforms boast annualized returns of between 2% and 20%, according to Investopedia research.

The Bottom Line
Whether real estate investors use their properties to generate rental income or to bide their time until the perfect selling opportunity arises, it's possible to build out a robust investment program by paying a relatively small part of a property's total value upfront. And as with any investment, there is profit and potential within real estate, whether the overall market is up or down.

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ARTICLE SOURCES
PART OF
Real Estate Investing Guide Guide
A Beginner's Guide to Real Estate Investing1 of 34
Real Estate Definition2 of 34
5 Simple Ways to Invest in Real Estate3 of 34
How to Make Money in Real Estate4 of 34
The Most Important Factors for Real Estate Investing5 of 34
How to Find Your Return on Investment (ROI) in Real Estate6 of 34
Real Estate Investment Trust (REIT)7 of 34
5 Types of REITs and How to Invest in Them8 of 34
How to Invest in Real Estate: REIT vs. Direct Real Estate Investing9 of 34
REIT vs. Real Estate Fund: What’s the Difference?10 of 34
Equity REIT vs. Mortgage REIT11 of 34
How to Assess a Real Estate Investment Trust (REIT) Using FFO/AFFO12 of 34
Eyeing a Real Estate Investment Trust? Consider These REIT Risks13 of 34
Captive Real Estate Investment Trust14 of 34
How to Analyze REITs (Real Estate Investment Trusts)15 of 34
Tips for Buying Your First Rental Property16 of 34
Top 10 Features of a Profitable Rental Property17 of 34
Whether to Flip a House or Use Buy-and-Hold18 of 34
How To Calculate ROI on a Rental Property19 of 34
How Rental Property Depreciation Works20 of 34
Add Some Real Estate to Your Portfolio21 of 34
Alternative Real Estate Investments22 of 34
The Best Real Estate Crowdfunding Sites of 202223 of 34
10 Good Habits of Successful Real Estate Investors24 of 34
8 Mistakes That Real Estate Investors Should Avoid25 of 34
How To Value Real Estate Investment Property26 of 34
Investing in Luxury Real Estate27 of 34
Avoid Capital Gains Tax on Your Investment Property Sale28 of 34
How to Prevent a Tax Hit When Selling a Rental Property29 of 34
What Is a 1031 Exchange? Know the Rules30 of 34
Avoiding a Big Tax Bill on Rental Real Estate Gains31 of 34
Key Reasons to Invest in Real Estate32 of 34
The Advantages of Real Estate vs. Stocks33 of 34
Is Real Estate Investing Safe?34 of 34
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Related Terms
Real Estate Investment Trust (REIT)
A real estate investment trust (REIT) is a publicly traded company that owns, operates or finances income-producing properties. Learn more about REITs. more
Captive Real Estate Investment Trust
A captive real estate investment trust is a REIT that is controlled by a single company and is established for tax purposes. more
What Is a Distribution Reinvestment?
A distribution reinvestment takes place when the distribution from a pooled investment trust, such as an REIT or mutual fund, is automatically reinvested in the trust. more
Real Estate Investment Group (REIG)
A real estate investment group (REIG) invests in real estate by buying, selling, and financing properties. Read how to get started investing in REIGs. more
Commercial Real Estate Definition
Commercial real estate (CRE) is property used solely for business purposes and often leased to tenants for that purpose. more
How Hypothecation Works
Hypothecation occurs when an asset is pledged as collateral to secure a loan without giving up title, possession, or ownership rights.

House listings surge

 

US home listings just surged 19% in a turnaround for the supply-constrained real estate market — but housing affordability keeps dropping like a rock

https://finance.yahoo.com/news/us-home-listings-just-surged-184500513.html

Potential homeowners in the United States received a touch of relief this month as Realtor.com released new data stating home inventory increased by 18.7% in June.

While supply increased, so did the cost of owning a home. The median listing price for active listings climbed 16.9% year over year to $450,000, the report states. And supply is still about half of where it was before the COVID-19 pandemic.

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Supply up in large cities

Housing inventory in the 50 largest U.S. metros overall jumped by 27.9% over last year in June.

Metros that saw the most inventory growth include Austin (+144.5%), Phoenix (+113.2%), and Raleigh (+111.7%) — all cities that saw booming demand for housing during the COVID-19 pandemic.

Homes continue to sell relatively quickly. In the 50 largest U.S. cities, homes spent an average of 28 days on the market — 2 fewer days on the market compared to June 2021.

The share of newly listed smaller homes (up to 1750 square feet) declined year over year, while the share of homes larger than 1750 square feet increased, suggesting that buyers are choosing to purchase less expensive homes.

Interest rates continue to influence purchasing

The Federal Reserve continues to try and dampen inflation by increasing interest rates. This has led to a rise in mortgage rates as well, making it more difficult for homebuyers to afford a home.

This also means many Americans are choosing to wait it out to see if mortgage rates reach a peak, or start to decline.

The Fed’s benchmark rate will end the year at 3.4%, according to the midpoint of the target range of individual members’ expectations. That could lead to more homes on the market in the near future as Americans decide now isn’t the time to buy.

The worst situation in 15 years

Affordability has hit a 15-year low with median home prices climbing to record highs, according to data service ATTOM.

It would take the average American more than one-third of their wages to cover homeownership expenses, higher than the recommended 28%, ATTOM’s data report states.

Of the 575 counties analyzed in their most recent report, 560 were less affordable than the year before. That’s 97% of counties compared to 69% in 2021. This makes it the highest point since 2007, just before the Great Recession and housing crash.

“Extraordinarily low levels of homes for sale combined with strong demand have caused home prices to soar over the last few years,” said Rick Sharga, vice president of market intelligence at ATTOM.

“With interest rates almost doubling, homebuyers are faced with monthly mortgage payments that are between 40 and 50% higher than they were a year ago — payments that many prospective buyers simply can’t afford.”

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6 things to know about housing

 I’m the director of forecasting for the National Association of Realtors. Here are 6 things you should know about the housing market now

Mortgage rates are rising, as are home prices. Here’s what buyers and sellers should know now according to Nadia Evangelou.

The housing affordability crunch is here — with mortgage rates continuing to rise (see the lowest rates you can qualify for here) at the same time that housing prices do. So – as part of our series where we ask prominent economists and real estate pros their take on the housing market now – we talked to Nadia Evangelou. She’s the senior economist and director of forecasting at the National Association of Realtors (NAR), and focuses on regional and local market trends, including the effects of changing demographic and migration patterns. She also specializes in research and analysis on local housing affordability conditions and solutions to increase housing inventory. Here are her thoughts on the housing market now.

The outlook is for mortgage rates to rise even further

Mortgage rates for 30-year fixed loans hit roughly 6% in June, up from a little over 3% a year ago, according to Bankrate data. The upward climb will continue, says Evangelou, just not at that same rapid pace: “I don’t expect to see the same sharp increases that the market experienced in March and April. It seems that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes,” says Evangelou.

Some buyers may want to consider an ARM

Given the current market, Evangelou says some buyers should consider taking an adjustable-rate mortgage instead of a fixed-rate mortgage. “If they plan to sell or refinance in the next 5 years, a 5/1-year ARM may make more sense because the rate on these is still below 4.5%. Thus, for a median-priced home, the monthly mortgage payment is about $300 lower than the payment for a 30-year mortgage,” says Evangelou. You can see the lowest mortgage rates you can qualify for here.

There are signs that the market is cooling

Both rising mortgage rates and home prices hurt affordability for many buyers. “As a result, existing home sales have dropped for the last four months. I expect a larger reduction of the home sales activity in the following months, especially after summer months,” says Evangelou.

And buyers are getting priced out of the market. Still, not all home buyers can afford to buy these additional homes. According to Evangelou, buyers earning $75,000 can afford about 25,000 fewer listings now compared to January.

Institutional buyers may increase competition for first-time buyers

With rising mortgage rates hurting affordability, more people are renting and due to low inventory, rents are rising sharply. “For institutional buyers, this translates to larger profits. However, a larger market presence of institutional buyers increases market competition for first-time home buyers. Research has shown that institutional investors may be taking a significant portion of homes that would otherwise be sold to first-time and lower-income buyers,” says Evanagelou. 

Home prices will continue to rise but at a slower pace

“Due to a housing shortage, home prices won’t drop in 2022. Remember that when there is a housing shortage, home prices don’t fall, in fact, home prices rose about 15% in May, although mortgage rates were about two percentage points higher than a year earlier,” says Evangelou.

Inventory is rising

There are about 20,000 more homes available for sale for buyers earning $200,000. “While it’s promising to see more homes available in the market, more entry-level homes are needed,” says Evangelou.

Housing correction in areas

 

How hard the housing correction is hitting your local housing market.

Inventory levels just spiked 100% in 137 regional housing markets.

Two months ago, Moody’s Analytics chief economist Mark Zandi came to Fortune with a bold call: The U.S. housing market, he said, was entering into a “housing correction.” At the time, some in the real estate industry brushed it off.

How fast things change. Now, many of the biggest names in real estate have adopted Zandi’s “housing correction” rhetoric.

What happened? The economic shock caused by spiking mortgage rates has pushed affordability beyond what many home shoppers can afford. Flipping from historically low mortgage rates to the highest rates since 2008, means homebuyers are finally feeling the full brunt of the record home-price appreciation that occurred during the pandemic housing boom. That has sidelined thousands of would-be buyers.

“The market is already correcting. Higher home prices and higher mortgage rates rose to the point that demand seized up in many parts of the country. Home prices are already adjusting down, and we could see that continue until consumer confidence and affordability resets,” Ali Wolf, chief economist at Zonda, tells Fortune.

Across the nation, sales of both existing homes and new homes are falling—fast. Fearing oversupply, many builders are cutting back. Or at least stopping the construction of unsold spec homes.

“It is widely understood that structurally there’s a housing shortage in America. The problem is, housing demand ebbs and flows cyclically based on factors such as consumer confidence and affordability. As demand turns down, like we are seeing today, builders will react by slowing down housing starts,” Wolf says. “Too much inventory is a problem for the wider housing market as well, whereby if builders need to cut prices, sellers in the resale market may need to cut prices as well to stay competitive.

How will this housing correction affect home prices? We don’t exactly know yet. But we do know what to watch: Rising inventory is, arguably, the best indicator for what awaits housing. Since March, inventory levels have spiked across the country. However, that inventory spike varies greatly by market. Let’s take a look.

How much inventory levels have shifted over the past three months
Change between March, 2022 and June, 2022

Among the 917 regional housing markets tracked by realtor.com, 873 saw rising inventory levels—the number of unsold listings—between March and June. Of those, 137 markets saw at least a 100% uptick. In 50 markets, including Provo, Utah (268% uptick), and Austin (260% uptick), inventory rose by over 150%.

It’s clear that regional housing markets in the Mountain West and Southwest are experiencing the swiftest slowdowns. Ironically, those markets were among the hottest spots amid the pandemic housing boom. As white-collar professionals realized COVID-19 had given them the ability to work remotely on a permanent basis, many fled cities like San Francisco and Seattle and took off for more affordable markets in places like Phoenix and Boise. That frenzy saw home prices in those Mountain West and Southwest housing markets become overvalued relative to underlying economic fundamentals.

Looking forward, Zandi doesn’t see a housing crash. Instead, he predicts U.S. home prices will remain unchanged over the coming 12 months, while he says significantly “overvalued” housing markets, like Boise and Charlotte, are poised to see prices fall by 5% to 10%. But that’s if a recession doesn’t occur. If a recession materializes, Zandi predicts U.S. house prices will fall by 5% nationally and by 15% to 20% in significantly overvalued housing market

One reason Zandi doesn’t expect a housing bust: If things begin to get too bad, the Federal Reserve could let up on monetary tightening. If that happens, buyers might get enticed back into the market by falling mortgage rates. The Fed’s goal is to slow inflation—not to crash the market.

I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again,” Fed Chair Jerome Powell told reporters last month.

Rates ease

 Mortgage rates eased last week. Per Forbes 

Rates for home loans fell last week as concerns about an economic slowdown mounted. But for anyone still trying to buy, the pullback in rates may spell opportunity.

The 30-year, fixed-rate mortgage averaged 5.7% for the week ending June 30, down 11 basis points—one one-hundredth of a percent—from the previous week, according to Freddie Mac. A year ago at this time, it averaged 2.98%.

What’s Ahead for Mortgage Rates

There are still plenty of Americans who want to buy a home, as evidenced by applications for mortgages. A measure of weekly application activity hit its lowest in 22 years earlier in June but has since edged higher as rates have fallen, according to the Mortgage Bankers Association (MBA).

There may yet be opportunities for would-be buyers. MBA economists forecast the 30-year, fixed-rate mortgage will average 5% throughout 2022, suggesting it may pull back after the recent surge.

Meanwhile, more sellers are listing their homes for sale. In June, the number of new listings was nearly 19% higher than a year ago, according to a report from Realtor.com. “Home shoppers are still snatching up homes quickly, but there are early signs of relief,” the report noted.

It may seem ironic, but some of that relief for would-be buyers comes courtesy of big economic headwinds. As Freddie Mac’s chief economist, Sam Khater, said in a release, “The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession.”

Buyers Gain a Slight Advantage

The extreme seller’s market of the past few years isn’t over, but buyers may now have a slightly better shot at getting a home, especially if they’re strategic.

“Buyers are looking but they’re being more discerning,” says Maura Neill, a Realtor with RE/MAX Around Atlanta.

Neill describes the current market as being in a bit of a lull, thanks to a “slight rise in inventory combined with higher rates, higher inflation, and uncertainty about all those things.”

One of the best things a buyer can do, Neill says, is to have some perspective. Rates right now seem high, but that’s because they’ve been deeply depressed for the past two years. And they may fall again in the future.

“Marry the house but date the rates,” Neill advises. “If you can afford the house, buy it, and plan to refinance when rates come back down.”

Only 2 of 3 bubble elements exists

 Only 2 of 3 elements of the bubble exists

By News Lambert

In July 2006, the hit “MTV Cribs” returned for its 13th season. Unbeknownst to viewers, who were getting an inside look at pop singer Joey Fatone’s home, that season premiere was airing just as the housing bubble was hitting its peak. Between 2000—the first year the show aired—and July 2006, the Case-Shiller U.S. National Home Price Index jumped 84.6%. But the party was coming to an end. After hitting that peak reading in July 2006, the U.S. housing market began to slow. By 2008, it was in a full-blown housing bust. That bust was so deep that U.S. home prices wouldn’t top their July 2006 reading again until January 2017.

The textbook definition of a housing bubble requires three things. First, you’d see exuberant demand—boosted by speculation—rush into the housing market. Second, spiked home prices would travel well above what incomes can support and reach overvaluation levels. Third, the housing bubble pops and home prices fall. As the 13th season of “MTV Cribs” aired in 2006, the housing market had already hit the first two criteria and, unknown to the public, was barreling towards the third.

Now let’s fast-forward to 2022, where the Pandemic Housing Boom has sent U.S. home prices up a staggering 41.6% since January 2020. That swift move-up in home prices (which is far above the 4.4% posted in a typical year since 1987) has economists perplexed. While the Pandemic Housing Boom isn’t underpinned by the unsound mortgage vehicles that drove the last bubble, it does meet some of the criteria for being a housing bubble.

“This might be a housing bubble. The evidence suggests it looks like a housing bubble. A little bit like a duck. It walks like a duck, it looks like a duck, it certainly might be a duck,” Enrique Martínez-García, a senior research economist at the Dallas Fed, recently told Fortune. While Martínez-García won’t call this a housing bubble, he says we should be paying attention to “the potential risks [that] housing poses.”

To better understand the ongoing housing cycle, let’s take a closer look at how it does—and doesn’t—look like a housing bubble. First up: We’re looking at overvaluation.

Every quarter, Moody's Analytics calculates an "overvalued" or "undervalued" figure for around 400 markets. The firm aims to find out whether fundamentals, including local income levels, could support local home prices. It's only troubling when a housing market becomes significantly "overvalued." That was the case in the lead up to the 2008 crash. In the first quarter of 2006, the median U.S. housing market was "overvalued" by 14.5%.

Following the 2008 housing crash, the U.S. housing market was left in a slump that lasted for years. By around 2013, things were inching up again. However, even as the housing market steadily improved, home prices remained relatively affordable. In the first quarter of 2020, Moody's Analytics estimates the median U.S. regional housing market was "overvalued" by just 2.1%.

That's why housing economists are on high alert. Over the past year, U.S. home prices have climbed 20.4% while private sector wages climbed 4.8%. That disconnect between income growth and home price growth is the perfect recipe for housing overvaluation to return. In the first quarter of 2022, Moody's Analytics estimates the median regional housing market was "overvalued" by 23%. That's a 20.9 percentage point jump in just a two-year timeframe.

On paper, the U.S. housing market has once again become historically "overvalued." However, like the industry saying goes: "Real estate is local."

The Pandemic Housing Boom was hardly a one-size-fits-all frenzy. As white-collar professionals realized the pandemic had given them the ability to work remotely on a permanent basis, many ditched their expensive apartments in cities like New York and San Francisco and took off for more affordable markets in places like Atlanta and Las Vegas. That saw markets like Atlanta and Las Vegas absolutely explode with buyer interest, while urban neighborhoods in New York and San Francisco were relatively cooler.

That regional divergence also means that some housing markets remained priced closer to fundamentals while others became bubbly. Look no further than the New York City metro. In the first quarter of 2006, it was "overvalued" by 39.3%. However, now it's "overvalued" by 8%. Meanwhile, frenzied Las Vegas is now "overvalued" by 53.3%—just slightly below its 2006 first quarter reading of 54.2%.

Among the 414 housing markets that Moody's Analytics assessed, 27 markets are "overvalued" by at least 50%. Of those, only two aren't located in the U.S. South or West. The Sun Belt and Mountain West, in particular, are the epicenters of this boom.

Overvaluation? Check. Now let's look at speculation.

The percentage of homes bought by investors

Change between Q1 2021 and Q2 2022

ATLANTA, GA

22.7%

33.1%

CHARLOTTE, NC

23.1%

32.2%

JACKSONVILLE, FL

23.5%

32.3%

PHOENIX, AZ

20.4%

29.0%

NASHVILLE, TN

17.3%

24.6%

COLUMBUS, OH

15.8%

22.8%

ORLANDO, FL

18.8%

25.7%

TAMPA, FL

18.3%

24.7%

LAS VEGAS, NV

20.6%

26.8%

SACRAMENTO, CA

13.9%

18.8%

SAN DIEGO, CA

16.4%

21.1%

BALTIMORE, MD

12.1%

16.4%

NEW YORK, NY

11.6%

15.5%

MIAMI, FL

24.3%

28.2%

DETROIT, MI

18.7%

22.2%

LOS ANGELES, CA

16.3%

19.8%

CLEVELAND, OH

19.3%

22.4%

DENVER, CO

14.2%

17.1%

CINCINNATI, OH

16.4%

19.3%

VIRGINIA BEACH, VA

9.4%

12.2%

PROVIDENCE, RI

5.3%

8.0%

CHICAGO, IL

10.7%

13.2%

SAN FRANCISCO, CA

17.8%

20.0%

PHILADELPHIA, PA

16.6%

18.8%

RIVERSIDE, CA

15.0%

17.2%

MINNEAPOLIS, MN

9.5%

11.6%

WASHINGTON, D.C.

7.5%

9.2%

SAN JOSE, CA

13.3%

14.7%

PORTLAND, OR

10.7%

11.5%

MILWAUKEE, WI

15.1%

15.0%

SEATTLE, WA

10.6%

10.1%

CHART: LANCE LAMBERT

CHART: LANCE LAMBERT  SOURCE: REDFIN EXAMINED COUNTY SALES RECORDS FOR HOMES PURCHASED IN 31 OF THE NATION'S LARGEST REGIONAL HOUSING MARKETS.

As the COVID-19 recession took hold in spring 2020, the Federal Reserve pulled every lever at its disposal. That pushed mortgage rates to historic lows.

Those low rates, which saw the average 30-year fixed mortgage rate bottom out at 2.65% in January 2021, were too good of a deal for investors to pass up on. Everyone from mom-and-pop landlords, Airbnb hosts, to institutional investors were jumping into the housing market. A study published by the Harvard Joint Center for Housing Studies found that investors' purchases of single-family homes hit an all-time high of 28% earlier this year. A separate analysis by Redfin found that investor purchases shot up this year in 31 of the 33 major housing markets it measured.

It wasn't just long-term investors who jumped in. Short-term flippers, attracted by record levels of home price appreciation, got in too. Indeed, a total of 114,706 homes were "flipped" in the first quarter of 2022, according to ATTOM Data. That's higher than any quarter in the years leading up to the 2008 bubble.

Why does that matter? A rush of investors buying up homes tells us that speculation and FOMO returned to the U.S. housing market. And you can't get a housing bubble, in theory, without speculation.

Let's be clear: While the U.S. housing market has met, on paper, two key elements for a housing bubble, it doesn't guarantee we are in one. We're still missing the final component: a housing bust.

Unlike in the run-up to 2008, the Pandemic Housing Boom wasn't fueled by a subprime lending boom. Just look at Americans' balance sheets. In the quarter of 2007, 7.1% of U.S. disposable personal income was going towards mortgage debt service payments. In the first quarter of 2022, that figure is 3.9%. That matters. As the housing market corrected in 2007, debt burdened households struggling to pay their subprime mortgages created a foreclosure crisis that took many of the nation's biggest financial firms, like Bank of America and Citigroup, to the brink. The combination of tighter lending standards and healthier balance sheets should, according to many industry insiders, prevent a housing correction from turning into a housing crash.

"Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007–2009 Global Financial Crisis in terms of magnitude or macroeconomic gravity. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom," wrote Dallas Fed researchers back in March.

It might not be a housing bubble. Then again, that doesn't mean we can rule out rough or challenging times ahead in some markets.

As the Federal Reserve kicks into inflation fighting mode, financial markets have pushed up mortgage rates. Moody's Analytics chief economist Mark Zandi says those spiked mortgage rates have pushed us into a "housing correction." Zandi says we should soon see home prices decline by 5% to 10% in significantly "overvalued" housing markets like Boise and Phoenix. Elevated demand for housing amid a period of tight inventory simply saw home prices move up too high too fast. While Zandi won't call this a housing bubble, he does think regional "overvaluation" could be a drag on future home price growth for years to come.

"I don’t think the market will face a Great Financial Crisis-like bust, given the different dynamics today around mortgage lending standards and strong builder balance sheets. We can’t ignore, however, that the market is already correcting. Higher home prices and higher mortgage rates rose to the point that demand seized up in many parts of the country. Home prices are already adjusting down, and we could see that continue until consumer confidence and affordability resets," Ali Wolf, chief economist at Zonda, a housing market research firm, tells Fortune.

If you’re hungry for more housing data, follow on Twitter at @robert_darvish