As Home Prices Soar, Is There a Bubble About to Burst?

The nation's surging home prices don't seem to care about the recession, the coronavirus pandemic, or double-digit unemployment. It has all led some to wonder: Are some markets getting too hot and could a significant correction be around the corner? Could the scale of corrections rival the foreclosures of the housing market collapse from the Great Recession?

“Some markets are overvalued," says Javier Vivas, realtor.com's director of economic research. "Growth of prices in a recession is pointing in that direction. Some markets are seeing increased risks of price corrections."

Leading up to 2008, credit was loose and lenders approved too many buyers for no-doc mortgages. This year's sky-high prices are driven by a rush of buyers competing for a very limited supply of properties. More demand than supply equals higher prices. Most striking in 2020's home price ramp-up is the fact that's happening in some of the nation's most expensive and cheapest markets alike.

“In the inexpensive markets, you have a ton of space for prices to grow. You can see them overheat and absorb that overheating better," says Vivas. That's unlike the already high-priced coastal areas. "The outlook for them is a faster and broader correction, [with] slight declines in home prices.”

Price corrections could happen by the end of the year in areas where prices have risen very high—along with local unemployment rates, says CoreLogic's chief economist, Frank Nothaft.

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