Is this the next housing "bubble"?

The market that peaked in 2006 and plummeted through 2012 is recent enough to still be on people's minds, and bubble is a scary word, but given current home values significantly exceed those of the previous peak, it's a fair question to ask. The short answer, we really don't think so.

The case for those who say we are in a bubble is mostly built on the reasoning that we were in one before, and values are higher now than then, therefore we must be in one again. The first response you'll hear to negate that would be, yes but those past values were built on bad loans and today's values aren't. It's true, bad loans were a real part of the past problem and today's lending practices are much better. It wasn't the whole problem though, and there's better data than just saying banks don't make bad loans anymore to support the case against. 

For starters, an accurate comparison should account for inflation. Nominal home prices are indeed above the previous peak but adjusted for inflation, we're still below the '05-06 levels, look at those past prices in 2019 dollars!

Additionally, as we touched on a couple months ago, despite higher prices, affordability remains fairly strong, particularly with rates remaining so low. Here's an average payment charted with median price. The higher priced median home today still has a lower payment than the lower priced '06 home. 

Last, we like this one, good job Americans! It seems as a country we learned from mistakes of the past and no longer treat home equity as an ATM. Cash out loans are a quarter of what they were leading into our last housing crisis.

None of this is to say values can't go down. We've had a period of very strong growth, it could mean values go down at some point. In the least, the rate of appreciation is likely to slow, but it doesn't read like a repeat of a bubble.

Cheers to a healthy market!

-Ben