A U.S. Housing Market Bubble 10 Years in the Making May Pop in 2020

  • Evidence that the US housing market has become a bubble is starting to stack up.
  • The affordability of US homes has dropped significantly, making it difficult to attract new buyers.
  • The current climate in the housing market is conducive to dangerous lending as buyers overextend.

In the lead-up to 2020, the US housing market faces conflicting forecasts, but the evidence that a bubble 10 years in the making is about to pop is starting to pile up.

Though low rates and an improving economic climate should create the perfect environment for the US housing market to thrive, data releases show there could be trouble brewing under the surface.

Homebuilders and Buyers Disagree

The National Association of Home Builders/ Wells Fargo Housing Market Index rose to 76 in December— the highest reading in two decades.

Taken at face value, the data suggest that the US housing market is on track for continued strength. But taken together with the University of Michigan’s consumer sentiment data, it looks more concerning. That’s because while builders are becoming more and more optimistic, potential homebuyers are growing more hesitant.

Consumer sentiment on the housing market is in a steady decline. | Source: University of Michigan

A big part of the reason for consumers’ declining home-buying sentiment was believed to be interest rate hikes. The figures show that the drop in sentiment began in 2015, when the Fed initially started raising rates. But given that the bank’s most recent rate cuts didn’t reverse the trend, something else is likely contributing to that decline.

According to analysts at Sundial Capital Research, the divergence between builders and buyers is unusual. The two typically move together.

Rising Home Prices Weigh on US Housing Market

More evidence that buyers aren’t confident in the state of the US housing market came in mid-December when existing-home sales dropped to 5.35 million units in November— below expectations.

Inventory showed an even…

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