The American housing bubble that wreaked havoc on the global economy was a long time in the making. Largely the product of exploitative lending practices that put people in homes they could not afford, the housing market bust dragged the median American home value down 37% — from a pre-recession high of $230,000 in 2005 to a post-recession low of $145,000 in 2011.
Today, with the housing collapse a decade behind us, new regulations safeguard home buyers from predatory lenders. During that time, home values have regained the value lost during the recession — and then some.
While steady year-over-year growth in home value is generally considered healthy, too much growth too quickly can lead to market instability and risk of a collapse in the long term — and in some U.S. cities, home values might be climbing too fast.
In four U.S. metro areas — Greeley, Colorado; Kennewick-Richland, Washington; Dallas; and Houston — the typical home is worth over 75% more than its peak value before the last housing bubble. For reference, the typical American home is worth 11.3% more today than its pre-recession peak.
While strong populations growth rates partially explain the climbing home values in these cities, problems can still arise when housing prices climb so fast. In an interview with 24/7 Wall St., Daren Blomquist, senior vice president of communications at ATTOM Data Solutions, explained that soaring home values ultimately reduce affordability. “That’s always a dangerous pattern to have and something that can develop into a bubble if it’s not already,” Blomquist said.
Whether or not the housing markets in these cities are an economic disaster waiting to happen remains to be seen, but such rapid growth in home value is not sustainable. “The disparity between incomes and prices is going to have to hit a wall at some point,” Blomquist said. “Now, that may not mean that the bubble pops, but it’s [unlikely] that pattern can continue indefinitely.”
To identify the cities that may be at risk of a housing collapse, 24/7 Wall St. reviewed quarterly median home price data for 150 metro areas from real estate data firm ATTOM Data Solutions. We reviewed the four metro areas with the greatest percent change in median home value from their pre-recession high to current levels. Ten-year population change is for 2007 to 2017 and came from U.S. Census Bureau’s American Community Survey. Median home value-to-median household income ratio was calculated with 2017 data, also from the ACS.