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Zillow Survey: No Housing Bubble, But A Recession Is Coming

David Krechevsky
Jun 07, 2022
Housing Bubble

More than half (56%) of respondents said they don’t expect the Fed to materially reduce inflation while averting a recession.

  • Of experts polled by Zillow, 60% don't believe the housing market is in a bubble, compared to 32% who do.
  • A short recession is expected by the panel by 2024 as the Federal Reserve works to tame inflation.
  • The panel raised home price growth forecasts for 2022 as demand stays strong.

Housing bubble? No. Recession: Coming soon.

That’s the opinion of a majority of more than 100 experts polled by Zillow Inc. in its latest Home Price Expectations Survey.

This edition of the survey was conducted between April 27 and May 9, 2022, by Pulsenomics LLC on behalf of Zillow Inc. It asked a panel of 114 housing market experts and economists their opinions on the state of the housing market and future growth, inflation forecasts, and recession risks.

Even as home prices continue to break growth records, 60% of those surveyed said they do not believe the U.S. housing market is in a bubble, while 32% said they think it is in a bubble, and 8% were not sure. 

Participants, however, do foresee a recession coming soon. 

The Federal Reserve is working to strike a balance between its twin mandates of reducing rampant inflation and avoiding a recession, but survey participants remain skeptical that a "soft landing" will be achieved: 56% said they don’t expect the Fed to materially reduce inflation while averting a recession. The remaining respondents were evenly split, with half believing the Fed will succeed in avoiding a recession while reducing inflation, and the other half not sure. 

Of those who doubt a soft landing will happen, three-fourths see a short recession as the most likely economic outcome. 

The largest portion of the panel (45%) expects the next U.S. recession to begin in 2023, which gathered more votes than 2022 (30%), 2024 (8%), or 2025 and beyond (17%). 

"Although the Great Recession was triggered by a housing crash, it's an outlier in the grand history of recessions, which have often strengthened investment in housing due to its relative stability as an asset," said Zillow economist Nicole Bachaud. 

The most popular reason for respondents rebuffing the housing bubble thesis is strong market fundamentals, including demographics, scarce inventory, and shifting housing preferences. Those were followed by low credit risks, due to sound loan underwriting and the overwhelming share of fixed-rate, fully amortized mortgages. Another large group of respondents rejected the term "bubble," which implies a subsequent crash that they do not believe is imminent. 

Among those who do believe the market is in a bubble, unaffordable prices in the absence of record-low mortgage rates was the chief rationale. 

"Americans have seen home values rise at record rates over the past few years. But although a recession is looking more and more likely, the housing market today is a far different beast than what we saw in the mid-2000s," Bachaud said. "Unlike in 2006, this market is underpinned by strong fundamentals and has been built on mortgages with sound credit, factors that won't change in the near term."  

Despite a more than 100-basis-point increase in mortgage rates since the previous survey three months ago, and the potential for higher rates in coming months, survey respondents’ expectations for 2022 home price appreciation still rose to 9.3% from 9% last quarter.

"Rapidly rising mortgage rates and looming recession risk threaten to tame the pandemic's hurricane-force winds that have whipped the market landscape and propelled U.S. home prices skyward," said Pulsenomics founder Terry Loebs. "With home values at record-high levels and a vast majority of experts projecting additional price increases this year and beyond, home prices and expectations remain buoyant. Even among those panelists who believe the U.S. housing market is now a bubble, most expect it to gradually deflate, not suddenly burst."

Pulsenomics LLC is an independent research firm that specializes in data analytics, opinion research, new product, and index development for institutional clients in the financial and real estate sectors. Pulsenomics also designs and manages expert surveys and consumer polls to identify trends and expectations that are relevant to effective business management and monitoring economic health.

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