Dallas Fed says “a housing bubble is brewing”

This week an interesting article came out. Researchers at the Dallas Fed published a report saying that a housing bubble is brewing. This seems super obvious but it’s important to note when the Federal Reserve, that controls our monetary policy, says such things. Now, this isn’t a “Fed Speech”, these are “researchers at the Dallas Fed” but still.

So what did they find?

Reasons for concern are clear in certain economic indicators—the price-to-rent ratio, in particular, and the price-to-income ratio—which show signs that 2021 house prices appear increasingly out of step with fundamentals.

https://www.dallasfed.org/research/economics/2022/0329.aspx

Yes, no shit. San Diego was recently called the most unaffordable housing market in the nation. Not New York, not San Francisco – San Diego. I totally believe it, because income in San Diego has always been rather low. Which is why when I moved back here pre-pandemic, I made sure to get a remote job from San Francisco.

Anyway, so why do the researchers think this is happening?

While historically low interest rates are a factor, they do not fully explain housing market developments. Other drivers have played a role, including pandemic-related U.S. fiscal stimulus programs and COVID-19-related supply-chain disruptions and associated policy responses.

The resulting fundamental-driven higher house prices may have fueled a fear-of-missing-out wave of exuberance involving new investors and more aggressive speculation among existing investors.

https://www.dallasfed.org/research/economics/2022/0329.aspx

Aka it’s not our fault! I like that they don’t even mention mortgage-backed securities here.

Anyway, you can read the full report here, nothing groundbreaking other than they were willing to say the B-word. _{(Bubble. Bubble is the B-word)}