Ask the CFP: Are Housing Prices in a Bubble?


Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “Are housing prices in a bubble?” The housing market has certainly experienced strong growth since 2020 when various stimulus packages were deployed by Congress. According to the National Association of Realtors, by the summer of 2021, the median price for an existing home increased by 23% in just one year. Home prices then fell a bit in the following months, but remain markedly higher today than just a few years ago. Does economic stimulus and rapidly increasing home prices mean we’re in a housing bubble? Not necessarily.

In the Great Recession of 2008, real estate prices certainly were in a bubble. That period of rapidly rising real estate prices occurred in part due to loose mortgage underwriting practices. The tighter mortgage regulations in place today exist primarily due to the last real estate crash. This, combined with economic factors such as a strong labor market, growth in the equity markets and Millennials seeking to trade up for larger homes has created this COVID-era demand. More Americans have also been buying second homes with remote work becoming commonplace.

While demand has been strong, the idea of more double-digit growth for median home prices for the next five years seems unrealistic. This pace of growth has already started to leave some would-be home buyers with few options, especially first-time homeowners and households with lower incomes. Even with some mortgage programs requiring as little as 3% for an initial down payment, prices have increased so much in some markets that being approved for a mortgage is out of reach for some. If median home prices grow significantly faster than median wages, the effect is fewer buyers and less demand. These households stick with renting instead.

It’s tempting to call this rapid increase in home prices a bubble, especially for those of us that remember 2008. While it’s always possible prices could decrease just as quickly as they increased, what’s more likely is that prices will continue to rise, but not at year-over-year double digits rates as we’ve just experienced. The US may see more households moving further away from cities to buy or build in less expensive markets, especially as supply chains return for the sake of inflated building costs.

Overall, it’s very unlikely we’re in a real estate bubble. These price levels may be here to stay, but since median home price growth has historically been closer to 3.5%, I wouldn’t count on 20% growth in the years ahead. If you have a question about this topic or have a question for next month’s video, please send it to Thanks for watching and we’ll see you next month.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please speak with a qualified tax or legal professional before making any changes to your personal situation.

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