May 2022

Housing: A Little Too Frenzied?

It has been a decade since there appeared to be much to worry about in the U.S. housing market. The boom of 2004-06 was followed by a contraction of such proportions that it threatened the stability of the financial markets and the U.S. economy itself. The massive intervention of the federal government allowed the natural restorative properties of a market economy to turn eventually. The housing sector has been pretty much quiescent since.

All things pass, however, and there are signs that there are potential sources of trouble. They do not appear at this point to risk a replay of the 2008-09 fiasco. That is attributable to two factors. The first is that human beings seldom repeat their most foolish errors twice in a row. The pain is too recent. The other is that, if the error was of sufficient magnitude, rules may have been applied to prevent repetition of the most egregious mistakes. The second rule remains in effect in the U.S., in the form of the Dodd-Frank legislation and related changes. While some argue that the rulemaking was excessive, the worst of that boom is unlikely to repeat.

It is nonetheless wise to eye the horizon from time to time. That is particularly true in housing, for multiple reasons. The first is that the asset class is very large. By market value, it is of the same order of magnitude as the stock market, which together are among the largest asset classes. Such size means that mispricing, if material, can in time threaten the economy and thus livelihoods.

John R. Gilbert

Senior Research Consultant

Our Team