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.
Bair, who served as a federal regulator when the mid-2000s housing bubble popped, nearly taking down the entire financial system, said home prices today are “bubbly” following years of low mortgage rates.
A housing bubble can form when prices rise to unsustainable levels. This can be caused by speculative buying, as was the case during the sub-prime mortgage crisis when people who could not make the monthly payments on their mortgages were buying homes with very little money down. The bubble popped when home prices dropped and many people owed more on their home than it was worth.
A bubble can also be caused by irrational exuberance, in which a surge in prices leads to a buying frenzy.
“When rates were cheaper, a lot of people wanted to buy. You ended up with really frothy price increases. That was pretty predictable,” said Bair, who led the Federal Deposit Insurance Corp. from July 2006 until July 2011.
Although Bair said home prices need to correct downward, she’s not confident that will happen anytime soon because there’s still a shortage of homes on the market and she doesn’t expect the bubble to violently burst.
“If supply remains constrained, this could go on for some time,” said Bair,who last week released a new children’s book about bubbles called “Daisy Bubble: A Price Crash on Galapagos.”
There were just 1.1 million existing unsold homes on the market as of the end of August, down 14.1% from the year before, according to the NAR. “Letting that bubble deflate a bit would probably be a good thing,” said Bair. “People who already own their home – and I’m one of them – don’t want to hear that. But for those who want to own, I hope home prices do come down.”
Over the past year, the median home price has increased by 23.8% in Los Angeles, 18.2% in San Diego, 15% in Richmond and 14.6% in Cincinnati, according to Realtor.com.
The good news is Bair does not see a repeat of the bursting of the mid-2000s housing bubble, which set the stage for the Great Recession. That’s in part because a typical homeowner today has more equity in their homes than a homeowner during that time. Only 1.1 million homes, or 2% of all mortgaged properties, owed more on their mortgage than their home was worth in September, according to CoreLogic. That is a small number compared with the share of properties underwater during the sub-prime mortgage crisis, which topped out at 26% in the fourth quarter of 2009, according to CoreLogic’s equity analysis, which began in the third quarter of 2009.
In addition, mortgage lending standards are significantly tougher today, meaning fewer people are borrowing more than they can afford.
“I see much less speculation in the housing market today, thank goodness,” said Bair.
And unlike in the mid-2000s, homeowners today have built up a significant cushion of equity. That means they shouldn’t find themselves in a situation like during the subprime meltdown where many owed more than their homes were worth.
“Even if home prices adjust a bit, people should not be under water,” said Bair.
Legendary investor Jeremy Grantham shares Bair’s concern about a housing bubble. He has been warning of an eventual plunge in home prices around the world.
“Real estate is a global bubble,” Grantham said on The Compound and Friends podcast last month. “Home prices will come down…30% would be a pretty good guess.”
Yet others on Wall Street are confident home prices will continue rising.
Despite high mortgage rates, Goldman Sachs expects US home prices will increase by 1.8% this year and then accelerate to 3.5% growth in 2024. Similarly, CoreLogic forecasts that home prices will increase by 4.3% from June 2023 to June 2024.
Although UBS acknowledges home prices have spiked to “dizzying heights” in recent years, the bank only sees two cities around the world at risk of being in a bubble: Zurich and Tokyo. That’s down from nine cities a year ago. Miami, Los Angeles, Toronto and Vancouver are among the cities that UBS says are in “overvalued” territory.
Fannie Mae CEO Priscilla Almodovar said it’s “unusual” that home prices have not taken more of a hit from high mortgage rates. “What has surprised us the most is the stickiness of home prices,” Almodovar told CNN in a recent interview. “Supply is the issue. There is no place to go. There is a lack of inventory.”
That’s the main reason Lawrence Yun, chief economist at the National Association of Realtors, says homebuyers shouldn’t hold their breath waiting for a drop in home prices.
“There is not going to be a home price crash,” Yun told CNN. “When you have a housing shortage, home prices simply cannot decline in any measurable way.”
While a temporary dip in prices is possible, Yun said a “prolonged” drop of 10% to 15% “cannot happen in this tight supply market.”
Yun noted that many assumed London was in the midst of a housing bubble years ago – only to see prices continue to rise, albeit with fewer people participating.
“It became only a playground for the wealthy. I hope America doesn’t go in that direction,” he said.
In many ways, today’s housing market is the polar opposite of the one that preceded the Great Recession.
Back then, reckless mortgage lending helped create a situation where demand became artificially strong. Eventually, it collapsed and the market was left with way too many homes.
“Today, we have an imbalance the other way. Too much demand, not enough supply,” said Yun.
The NAR has estimated the supply of homes needs to basically double to moderate home prices.
“It’s creating social inequity. The only way out of this situation is we have to induce more supply,” said Yun.
Today we wrap up the 50-week look at the number of NSDCC active and pending listings for 2023 (above). Last year’s market was the only one that was somewhat comparable to this year, so here’s how 2022 looked for the same 50 weeks:
Second week of December, 2022: 329 actives. 107 pendings
Second week of December, 2023: 332 actives, 118 pendings
Those who are betting that 2024 inventory will look a lot like the last two years probably won’t be disappointed!
Here is how the last two years looked for their pricing quartiles:
2022
2023
Whoa….a much-different look! Once the higher mortgage rates took the fluff out of the list prices last summer, the market has been fairly steady. How about the sales prices?
First Quarter, 2022: 537 sales, median sales price $2,350,000
First Quarter, 2023: 408 sales, median sales price $2,100,000
Third Quarter, 2023: 522 sales, median sales price $2,150,000
Jay Powell can say he crashed the market – and this is how it looks today between La Jolla and Carlsbad.
Mortgage rates have come down 1% in the last few weeks, and the casual observers are hoping it means that the Big Turnaround will commence in the Spring of 2024.
But for a full-fledged frenzy to break out, home prices would have to drop too.
We’ll never learn much from the median sales prices by themselves. But the SP:LP ratios demonstrate the off-season trend of buyers driving harder bargains, which is the solution for lower prices too.
We’re probably not going to see the whole market drop in price (i.e., big dips in the median sales prices) because the superior properties should hold their value better with the impatient buyers.
But those who don’t need the perfect house will likely have better luck next year with getting a deal. We only flirted with an over-list frenzy briefly this year, and in 2024 we not see many, if any, 100% months.
It looks like 29% of you, or almost one out of three, are looking to move elsewhere? Or are you just confirming that there’s nothing better than San Diego?
San Diegans are looking elsewhere to live, according to a Redfin report that placed America’s Finest City as the No. 10 metropolitan area where homebuyers are leaving.
The real estate company analyzed about two million of its users who viewed for-sale home online across more than 100 metro areas from August to October.
Las Vegas was the top destination and top out-of-state destination in San Diego home searches. In October, the median sales price in San Diego was $914,000, compared to $412,000 in Las Vegas.
Sacramento is also on the minds of locals as San Diego ranked No. 3 on the number of homebuyers searching to move into California’s capital city, the study shows. The median price of a house in Sacramento was $500,000 in October, per Redfin.
I mentioned this dilemma a few months ago and the C.A.R issued clarification in October. While the contract generally tends to be seller-friendly and of course it protects realtors at all costs, this is an advantage for buyers:
Sometimes during the course of the transaction, a buyer may need to assign all or a portion of their interest in the contract. This could mean swapping out one buyer for another (a total assignment) or it could mean adding an additional buyer to the existing one (a partial assignment) or it could mean deleting a buyer or replacing buyer(s) with at least one original buyer remaining (other assignment). In each case, buyers under the Residential Purchase Agreement (C.A.R. Form RPA) have a limited right to assign their interest in the contract as long as they follow the appropriate procedures.
Right to Assign under Paragraph 23 of the RPA
Paragraph 23 of the RPA lays out the procedure for an assignment to take place. If the buyer is assigning all of their interest to either 1) their own trust or 2) any wholly-owned entity of buyer’s that is in existence at the time, then the buyer has the right to make the assignment and does not need seller’s consent.
In any other circumstance, buyer may not assign the contract without first getting the separate written consent of the seller to the specified assignee. The seller’s consent, notably, cannot be unreasonably withheld.
When making an assignment request, the buyer must:
• Disclose the name of the assignee
• Disclose the amount of any monetary consideration between buyer and assignee
• Provide assignee with all documents relating to the transaction
• Ensure that assignee will provide a letter from assignee’s lender that assignee is prequalified or preapproved as specified in the RPA
If the buyer does not deliver the assignment request and satisfy the above requirements within 17 Days after Acceptance (or whatever time is specified in RPA Paragraph 3K) then the seller’s withholding of consent to the assignment shall be deemed reasonable.
On the AOAA form, the buyer has to declare the amount of the payment involved:
Lawrence Yun, NAR’s chief economist, believes mortgage rates could remain around 7 percent for most of 2024. However, he thinks rates have likely crested: “I believe we’ve already reached the peak in terms of interest rates.”. Within two years, he says, the rate should return to 5.5 or 6 percent.
Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. The only exception is California, he says, where the market could see 10 percent declines: “Because it’s so expensive, California is always the most vulnerable to changes in interest rates.” Overall, in five years, Yun expects prices to have appreciated a total of 15–25%.
McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.
While it may show bubble-like characteristics, Yun does not expect the residential real estate market to pop. He said, “A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.
Zillow has a similar forecast, as it expects home values to rise by 6.5% from July 2023 through July 2024, despite “despite persistent affordability challenges.”
Likewise, Freddie Mac is forecasting prices rising by 0.8% between August 2023 and August 2024, followed by another 0.9% gain in the following 12 months. Part of the rebound in prices is based on the “large cohort of Millennial first-time homebuyers reaching prime home-buying age,” Freddie Mac reports.
The CoreLogic HPI Forecast indicates that home prices will not change on a month-over-month basis (0.0%) from October 2023 to November 2023 and increase on a year-over-year basis by 2.9% from October 2023 to October 2024.
Rick Sharga said, “Home prices will probably rise slightly in 2024, perhaps by 2-3% as demand continues to outpace supply. However, this will not be universally true; some formerly high-flying markets like the Bay Area in California, Austin, and Phoenix could see prices continue to fall, while cities in the Southeastern states may see prices rise more quickly.”
Nick Ron, founder and CEO of House Buyers of America, expects average home prices in the U.S. to rise around 3 to 4% next year. “But at some point in 2024, I see a slowdown in price growth.”
Goldman Sachs analysts predict home prices will continue to climb before dipping this winter, then rebounding “only modestly” in 2024. Then, their model projects “a rebound to below-trend home price growth … as rates decline modestly but remain at elevated levels.” In December 2024, they predict national home prices will increase by 1.3% year over year. That’s a downward revision from July, when Goldman predicted a 1.7% home price increase in 2024. So far in 2023, home prices have increased an estimated 4.2% “but are likely to fall 0.8% through December for a 3.4% year over year increase,” Goldman analysts wrote.
Not all forecasts expect home prices to climb, however.
Redfin thinks that home prices will fall 1% year over year in the second and third quarters, when the home-selling season is in full swing. That will mark the first time prices have declined since 2012, when the housing market was recovering from the Great Recession, with the exception of a brief period in the first half of 2023.
Based on declining affordability and more homes being built, both Moody’s Analytics and Morgan Stanley expect home prices to fall slightly in 2024.
Morgan Stanley housing analysts expect home prices to hold steady year over year in 2023, before edging lower next year.? “We forecast house prices in 2023 to finish the year flat versus 2022 before falling 2% in 2024 as affordability continues to adjust slowly back to long-run averages and inventories begin a slow climb off multi-decade lows,” wrote the firm’s housing research team.?
Moody’s says “it’s premature to celebrate the end of the housing correction,” which is why it expects median home prices to decrease by 3.5% between the fourth quarters of 2023 and 2024, according to an updated forecast.
Andrew Lokenauth, owner of BeFluentInFinance: “Home prices will likely drop 5-10% nationally in 2024 as demand softens further. Affordability issues, economic uncertainty, and moderating investor activity will weigh on prices. Of course, the exact amount prices will reduce will depend on local market conditions and employment trends.”
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We sold a home with Jim and Donna and from beginning to end they were consummate professionals. Their initial walk through the property resulted in a list of items to be repaired or updated. They supplied a list of vendors and job quotes to do the repairs and updates. We originally wanted to sell ‘as is’ and just get it over with. They gave us a selling price for ‘as is’ and options for doing a few updates/repairs to doing it all with the selling price for each option. We agreed to do all they suggested and we sold for the exact price they predicted. For every dollar spent we got back more than $2 back in the selling price. And they got that price in a rising interest rate environment! Donna and Jim are extremely detailed and guide you through ever aspect of the sale. There were no surprises thanks to their guidance. We couldn’t be more pleased with their representation.
Thank you Donna and Jim,
Jerry and Mary
Heather Quejada
March 27, 2025
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We have known Jim & Donna Klinge for over a dozen years, having met them in Carlsbad where our children went to the same school. As long time North County residents, it was a no- brainer for us to have the Klinges be our eyes and ears for San Diego real estate in general and North County in particular. As my military career caused our family to move all over the country and overseas to Asia, Europe and the Pacific, we trusted Jim and Donna to help keep our house in Carlsbad rented with reliable and respectful tenants for over 10 years.
Naturally, when the time came to sell our beloved Carlsbad home to pursue a rural lifestyle in retirement out of California, we could think of no better team to represent us than Jim and Donna. They immediately went to work to update our house built in 2004 to current-day standards and trends — in 2 short months they transformed it into a literal modern-day masterpiece. We trusted their judgement implicitly and followed 100% of their recommended changes. When our house finally came on the market, there was a blizzard of serious interest, we had multiple offers by the third day and it sold in just 5 days after a frenzied bidding war for 20% above our asking price! The investment we made in upgrades recommended by Jim and Donna yielded a 4-fold return, in the process setting a new high water mark for a house sold in our community.
In our view, there are no better real estate professionals in all of San Diego than Jim and Donna Klinge. Buying or selling, you must run and beg Jim and Donna Klinge to represent you! Our family will never forget Jim, Donna, and their whole team at Compass — we are forever grateful to them.
Lou F
March 27, 2025
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WeI had the pleasure of working with Klinge Realty Group to sell our home in Carmel Valley, and I cannot recommend them highly enough!
Jim and Donna demonstrated exceptional professionalism, offering expert guidance on market conditions and pricing strategy, which resulted in a quick and successful sale.
Communication was prompt and we were well-informed throughout the entire process.
For anyone looking for a dedicated and knowledgeable real estate team, look no further!
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William Sams
March 25, 2025
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Donna and Jim Klinge of Klinge Realty Group have our highest possible recommendation. From Donna and Jim’s first visit to our house through closing their advice and counsel was candid and honest in all dealings. They kept us fully informed throughout the process. The house sold less than three days after listing with a two-week closing. My wife and I have sold several houses during our lives. This was by far the best experience. Klinge Reality is a premium service realtor. You can’t make a better choice for someone to sell your home fast and for top dollar.
Emily Hernandez
December 29, 2024
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Donna and Jim provided exceptional support and professionalism throughout the entire process. We couldn't have been happier with their efforts. They made our house shine, and thanks to their expertise, it sold above the listing price in the very first weekend! Truly a fantastic experience from start to finish.
Jesus Adrian Sahagun
November 11, 2024
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This year has been difficult on our family, mainly due to having to sell our home. Thankfully we knew God had a plan for us and working with the Klinge team was a key part of it. It was an obvious decision to work with them again after such an amazing experience when purchasing the same home we needed to sell. The challenge was, how will we do this in so little time with so much going on? Jim and Donna held our hand every step of the way. Whenever an unexpected issue arose they found and provided a solution. Never once did we feel pressured to make a decision and the Klinges were always reassuring after providing the information that the decision was ours to make. Despite the curve balls, they never panicked and exemplified the “can do” attitude, making us feel optimistic and taken care of. Their expertise and professionalism was superb. But of all the reasons to work with the Klinges, the most impactful and valuable is their compassion and genuine care for their clients. We pray that we can one day purchase our forever home and you better believe that Jim and Donna will be representing us - as long as they will have us of course. Thank you again Klinge team! Your execution, experience, and care are unmatched.
SABIHA PASHA
July 23, 2024
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Jim and Donna were fantastic! Jim understanding my needs, recommending potential places, pointing out the pros and cons of each property was invaluable. Then when the offer was accepted Donna’s organized guidance through the inspections, paperwork etc made the whole process seem effortless.
So grateful that I had them on my side!
Anu Koberg
July 13, 2024
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We first found Jim through his blog at bubbleinfo.com, which really showcased his knowledge of SoCal real estate. Since then we've done three transactions with Jim and Donna, and they are an incredible full service agency, with Jim's deep market insight and Donna's deft contract and project management. We trust them implicitly in their analysis and strategy, which is based on years of experience. They're always available and on top of things, and we strongly recommend them to anyone.
Bjorn Isachsen
July 10, 2024
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The Good
The Klinge Realty Group operates like a finely tuned machine, with a very personal touch. We contacted them on a Sunday and they were talking to us about our family and our needs on our living room couch the following day. They carefully listened to us and worked with us to identify the best and quickest path to listing within 2 weeks to take advantage of the low inventory conditions in our South Carlsbad neighborhood. They knew our tract specifically and had many previous sales there over the years - they came prepared with a thorough analysis of comparative sales and recommended a pricing strategy that they felt confident would yield offers the first weekend on the market.
The Great
Over the next two weeks Donna coordinated a range of vendors who she knew from experience could get the preparation to list work we needed done on time and with high quality. Our light tune-up involved excellent experiences with their stagers, landscapers, contractors, electricians, and plumbers. Throughout this period Donna's daily communication was clear, concise, and responsive. Any time we had questions Donna picked up the phone or texted immediately - but almost always, she answered our questions before we even knew we had them.
The Outstanding
We had a tricky situation with a shared fence that could have delayed our escrow. Donna used superb mediation skills to negotiate the terms of replacement and was personally on site with the fence contractor to make sure everything went smoothly. The fence looks great and escrow closed on time.
The Truly Exceptional
Our house came on the market on a Wednesday and between then and Monday morning Jim was personally at all three open houses. He was in constant communication explaining potential buyer reaction and strength. As he predicted offers began to come in on Saturday and each one was incrementally higher than the last. At the end we had 5 offers, 4 of which were over list, and the final accepted offer was $100,000 over list. In addition to being over list it included rent back terms that met our needs.
The Recommendation
For all of these reasons we would strongly recommend The Klinge Team to anyone wanting to sell in North County Coastal San Diego. I had been reading Jim's bubbleinfo.com blog for 15 years and knew when the time came to sell that he would be our first call. Jim Klinge is not your standard realtor. He is keenly aware of market conditions and sales strategies. And, works his tail off - though not as hard as Donna . At this point he's gone from realtor to friend and I plan to have him over to grill and chill at our new place to talk real estate, but also just about life and raising kids in San Diego. He's more interested in relationships than his sales numbers - and that's why his sales numbers are so high. We have already recommended the Klinge's to some close friends and another successful sale is on deck right around the corner...
Chris Shea
June 21, 2024
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We recently had the pleasure of working with Jim and Donna from Klinge Realty Group to sell our house, and we couldn't be more satisfied with the experience. From the initial meeting, they listened attentively to our needs and provided invaluable guidance on specific improvements to get our home market ready.
Their responsiveness throughout the entire process was truly impressive. Anytime we had questions or concerns, they were quick to address them, ensuring we felt comfortable and informed every step of the way. What stood out the most was their team and extensive network of tradespeople, which made addressing any necessary repairs or updates seamless and stress-free.
Thanks to their expertise and dedication, our house sold quickly and at a great price. We highly recommend Jim and Donna to anyone looking to buy or sell a home. They are a fantastic team who truly care about their clients and deliver exceptional results.
