A Real Estate Bubble Could Spell Trouble for the Housing Market, but Is It a Likely Scenario?

A record low supply of homes for sale is pushing prices to new highs, and as rising mortgage rates exacerbate a growing affordability crisis, experts are identifying possible warning signs of a housing bubble, CNN reports. The average U.S. home is logging a 40% increase in monthly payments compared to just a year ago, and as conditions worsen, budget-conscious first-time buyers will be the first to feel the sting of a potential bubble.

Even if a housing bubble becomes reality in a post-pandemic housing market, persistent demand will likely prevent a bust, especially as the rate of home building increases nationwide. Elevated mortgage rates could cause a slowdown in demand, experts say, but as competition wanes, some impatient buyers may use the opportunity to jump into the fray, keeping the market stable in the face of rapid price growth.

"Rising interest rates from 3% to nearly 5% over four months, that has helped push some competition to the sidelines," said Mike Maher, co-founder and CEO of Houwzer, a real estate brokerage.

Still, he added, "it is going to be really hard for this bubble to burst any time soon because demand is outpacing supply and even though rates are rising, money continues to be cheap by historical standards."

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