Zillow poll: Housing market not in bubble, but recession on horizon

The U.S. housing market is not in a bubble, according to a panel of experts polled by Zillow, but the same panel believes that a recession is coming — and soon.

The company’s most recent Zillow Home Price Expectations survey tapped more than 100 experts and economists from academia, government and the private sector, with 60% of respondents saying that they did not believe that the country’s housing market is currently in a bubble. Only 32% of survey participants believed that there is a bubble today, while 8% said they weren’t sure.

Respondents who shrugged off the “bubble” label pointed to a strong foundation underpinning the market. Thirty-three percent of those who believe there is no bubble said that recent home-price growth can be explained by fundamentals such as demographics, shifts in housing preferences and scarce inventory. Another 29% said that credit risks remain low due to sound loan underwriting and a large share of fixed-rate, fully amortized mortgages, while 8% said that home-price growth is high but not excessive when measured in real (inflation-adjusted) terms.

Twenty-six percent took issue with the terminology, saying that the term “bubble” implies an upcoming crash, and there isn’t likely to be one soon. But even though Zillow’s panel largely doesn’t foresee a bubble or a crash, it does expect a recession in the near future.

Forty-five percent of respondents — the largest share of those polled — believe the recession will begin next year, with 16% expecting it sometime in second-quarter 2023. Many expect it sooner, with 30% of respondents expecting it to start in 2022. Eight percent foresee the downturn arriving in 2024, while 17% don’t expect it until 2025 or beyond.

Zillow noted that while the previous recession was sparked by a housing crash, real estate has historically been a safe haven when it comes to recessions. Downturns, often strengthen investments in housing since it’s a relatively stable asset, Zillow researchers said.

Among other takeaways from Zillow’s survey:

• Among those who said that the market is in a bubble, unaffordable prices absent record-low mortgage rates was the main reason given.

• The panel doubts that the Federal Reserve will ultimately be successful in its twin goals of controlling inflation and avoiding a recession. Fifty-six percent of respondents don’t expect the Fed to “materially reduce” inflation while deterring a recession. Of the rest, half feel the Fed will find success, while the other half are unsure.

• The panel’s projection for home-price growth in 2022 continued to increase and reached 9.3%, up from 9% in the previous quarter. This was substantially lower than the 19.6% appreciation during full-year 2021, although still far higher than long-term historic averages.

• On average, panelists project a 26.4% cumulative rise in prices by the end of 2026.


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