A former federal regulator who served when the 2006 housing bubble burst is concerned that today’s housing market is on an unsustainable path.

The housing market’s affordability is worse than it’s been in decades as mortgage rates toy with 8%. The median price of a U.S. home was $322,500 in the second quarter of 2019. Then the pandemic housing rush hit, and prices across the nation shot up. High mortgage rates sent sales spiraling, but home prices only experienced a minor correction before heading back up. In the second quarter of this year, the median price was $416,100, according to the Federal Reserve Bank of St. Louis.

“Talk about a bubble. That’s a classic supply-demand imbalance,” Sheila Bair recently told CNN.

Even though Bair said home prices need to correct downward, she doesn’t expect that it will happen anytime soon because the U.S. is also experiencing a housing shortage, which has helped keep home prices high even amid today’s high rates, per CNN.

“If supply remains constrained, this could go on for some time,” she told CNN.

Bair doesn’t expect the bubble to burst, but she said “letting that bubble deflate a bit would probably be a good thing.”

“People who already own their home — and I’m one of them — don’t want to hear that,” Bair told CNN. “But for those who want to own, I hope home prices do come down.”

The good news is that Bair said she sees “much less speculation in the housing market today, thank goodness,” compared to the mid-2000s, per CNN. She also noted that even if prices come down, existing homeowners have built up a significant amount of home equity over the past several years alone.

So “even if home prices adjust a bit, people should not be under water,” Bair told CNN.


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