Trying to pinpoint when a bubble is happening in real time is notoriously difficult. It's usually only obvious in hindsight. That doesn't stop investment firms or researchers from trying. The Dallas Fed, for example, has a metric tracking exuberance in the housing market based on price-to-rent, price-to-income, and real house prices which has signaled exuberance in the housing market since 2020. But this metric identifies when buyers and sellers are exuberant and not necessarily when and by how much prices will come down when the exuberance is over.

The best indication of the trend for home prices going forward are fundamentals that drive supply and demand and an indicator of how in- or out-of-balance the current housing market is. Several indicators tell us that the 2022 housing market started off with a record imbalance of demand far-outstripping supply. As mortgage rates rose, we saw market-balance shift away from sellers and suppliers, toward buyers, but still, even as we start 2023 and the number of homes for sale is up more than 65% compared to a year ago, there are more than 40% fewer homes than was common at this time of year in the 2017-2019 pre-pandemic housing market.

Home buyers have more negotiating power and leeway than they've had over the past few years, but compared to most prior periods, the housing market still remains relatively under-supplied.

-Danielle