Experts warned of a housing bubble. They were wrong.

A litany of supposed catalysts was going to send prices into a tailspin: the “Airbnbust,” the sudden surge in mortgage rates, a flood of grifters and hucksters looking to make a quick buck in real estate. Bubble watchers forecast chaos, then sat back and waited. And waited. And waited.

I’ve spent the past few years asking experts a simple question: Has the housing market reached bubble territory? The answer remains a resounding no. More than three years after prices started to soar, the only thing that’s gone bust is the gloomy predictions. Despite some cooling in a handful of overheated markets such as Charlotte, North Carolina, and Austin, the median home-sale price increased by a respectable 4% nationwide in 2023, Redfin reported. The price for a typical home has risen by more than 47% since late 2019, according to the S&P CoreLogic Case-Shiller National Home Price Index, a closely watched measure of housing costs.

But maybe I’ve been posing the wrong question all along. The B-word implies an impending pop, a point when the combination of greedy speculation, unscrupulous behavior, and soaring prices brings everything crashing down. Barring a large-scale economic disaster, there’s no pop in sight.

The staggering jump in home prices is concerning, to be sure. But it’s a function of a severe lack of supply, not a byproduct of investors swarming the market or shady lenders artificially juicing demand. Those looking for parallels to 2008 are grasping at straws — homeowners are in far better financial shape than they were the last time prices cratered, and homebuilders, rather than flooding the market with new properties, aren’t keeping pace with the sheer volume of millennials suddenly consumed by dreams of backyards and picket fences.

So if you’ve been waiting — maybe even cheering — for prices to plummet: Don’t hold your breath.

Warning signs

A funny thing about bubbles is they don’t fall neatly into a single definition. Ask a dozen economists to sketch out their criteria, and you’ll probably get 12 different answers. But Mike Simonsen, the president of the housing research firm Altos Research, offered a useful way to think of a bubble’s life cycle in a post on X, formerly Twitter, late last year (which I’ve slightly paraphrased):

1. You got rich! Good for you! You did the hard work and got in early.

2. Hm. It seems like everyone is getting rich?

3. Wait. That asshole?! That guy is not smart, maybe even criminal.

4. Pop.

For a time, it seemed like the housing market was doing a speedrun through Simonsen’s checklist. There were the runaway prices: Before the pandemic, you could buy a median-price home in Las Vegas for about $281,300, according to Redfin. Good luck finding that kind of deal now — even with a dip from pandemic highs, the cost of a typical house there has swelled to $422,000, an eye-watering 50% increase. Similar stories have played out in Miami (70%), Boise, Idaho (40%), and Dallas (36%). The typical household would have to spend nearly 34% of its income to afford major homeownership expenses such as mortgage payments and property taxes, according to the data firm Attom, the highest percentage since 2007 and well beyond the 28% debt-to-income ratio that’s typically preferred by lenders.

Then there were the people getting rich. Speculators were using supercheap loans to buy homes, expecting to profit by selling to an even bigger fool; home flippers, aspiring megalandlords, and Airbnb owners flaunted their debt-funded miniempires on TikTok; and seemingly everyone was signing up to be a real-estate agent. Even usually buttoned-up real-estate professionals were giving off bubble vibes: High-flying mortgage companies threw lavish parties featuring bands such as Imagine Dragons, while Zillow, the ubiquitous home-search site, morphed into one of the country’s biggest homebuyers — even though its acquisition math didn’t add up.

All the signs seemed to point to a bubble, and there were plenty of people predicting the “pop” was coming: In late 2022, the prominent Wall Street economist Ian Shepherdson forecast home prices to fall by as much as 20% the following year. Goldman Sachs expected a more modest, but still significant, decline of up to 10% from the peak. Countless headlines wondered whether home values were set to crash. Even Federal Reserve Chair Jerome Powell, whose every word threatens to move markets, said at a Brookings Institution event in 2022 that housing was in a “bubble” during the pandemic, with “prices going up at very unsustainable levels.”

The gloomy oracles could even point to an instigator of the coming collapse. The Fed, led by Powell, began raising interest rates in spring 2022 to fight inflation, sending mortgage rates shooting upward. Mortgage rates kept rising through most of 2023, eventually reaching a 20-year high in October of nearly 8%, up from less than 3% during the depths of the pandemic in 2020 and 2021. Suddenly it wasn’t so cheap to borrow money, making it tougher for reckless investors to enter the market. Speculation is the oxygen for a market-frenzy fire, Rick Palacios Jr., the director of research and managing principal at John Burns Research and Consulting, told me. By hiking rates, the Fed cut off the air supply.

But there was no pop, no sudden collapse in home prices. Even with mortgage rates tripling and buyers retreating, values held up. To understand why, you have to look at the fundamentals — the deep-seated reasons all the “Bubble Boys,” doomsayers, and fear-mongering headlines are dead wrong.

Debunking the bubble

Rising prices, no matter how steep, aren’t enough to constitute a bubble. Prices also need to diverge from the fundamentals, or the basic components of supply and demand, that determine how much things cost. If the run-up in prices defies logical explanation or obscures sketchy business practices, watch out. In the years leading up to the global financial crisis, for instance, lenders came up with creative ways to boost demand: They devised predatory mortgages that left borrowers on the hook for impossibly high payments once their teaser rates expired and handed out so-called NINJA loans (no income, no job, and no assets). If you owned a home at that time, you might’ve felt like the only direction its value could go was up.

The recent housing-bubble theory was always going to age poorly because of one fact: The pandemic soaring prices were justified. Prices didn’t spiral out of control because we built too many homes or made it too easy to borrow money, like in 2008; they took off because there simply weren’t enough homes for all the creditworthy people who wanted to buy them.

For home prices to suddenly crash, there would have to be a pool of desperate sellers looking to offload their homes on the cheap — or, worse, losing them to the foreclosure process. Sure, speculators were loud and proud about their get-rich-quick schemes, but they were a vocal minority. And regular homeowners have “never looked this good” when it comes to their financial and credit health, Logan Mohtashami, the lead analyst at HousingWire and an outspoken critic of bubble alarmists, told me. Less than 4% of outstanding mortgages were delinquent at the end of the third quarter last year, according to the Mortgage Bankers Association, a near-record low. In the fourth quarter of 2023, the median credit score for people getting a new mortgage was a stellar 770, according to the Federal Reserve Bank of New York. (Lenders typically consider a score above 700 to be a marker of future success for a borrower.) Almost 79% of homeowners with a mortgage have locked in a rate below 5%, a Redfin analysis of data from the Federal Housing Finance Agency found. In the history of rates, that’s a pretty incredible deal. And nearly 40% of homeowners don’t even have to stress about mortgage payments at all, according to census data — they own their homes free and clear.

Rather than facing a housing bubble, we’re staring down an entirely different crisis: a supply shortage that has regular buyers fighting just to break into the market. US homebuilders spent the decade after the global financial crisis building at about half the rate of the three decades prior, contributing to the housing crunch. Various estimates have pegged the national housing shortage anywhere between 2 million and 6 million homes. The supply constraint hit right as millennials, the largest living generation in the US, reached their prime homebuying years. Add in people’s sudden desire for a bigger house or a place of their own in the heat of the pandemic, and the recent surge in home prices seems less bubbly and more logical. The lack of inventory is the reason prices didn’t suddenly drop, even when mortgage rates shot up. Sure, buyers pulled back. But sellers pulled back even more, leaving the supply-demand imbalance in place.

“It’s a savagely unhealthy housing market,” Mohtashami told me. “But it’s also a market that just had too many people chasing too few homes.”

Staying high

It’s tempting to look for echoes of 2008 in today’s housing market. You might even be inclined to cheer on a crash in prices — all the better for everyone who feels locked out of homeownership. But cycles rarely repeat in the same way, Selma Hepp, the chief economist at CoreLogic, told me. Anything that could incite a housing crash probably wouldn’t leave average consumers in a position to suddenly pounce on all that excess inventory.

Fannie Mae now projects a modest 3.2% increase in home prices this year and a jump in home sales, along with a decline in mortgage rates. Goldman Sachs predicts a 5% rise in home prices. John Burns Research and Consulting doesn’t publish an exact forecast of home prices, but Palacios told me the firm expected to see a similar increase in the “low single digits.”

Perhaps the biggest threat to the housing market at large is a severe economic slowdown, one in which many people lose their jobs and can’t pay their mortgages. It’s notoriously difficult to estimate where the economy is headed, but right now, it’s roaring along, especially compared with other rich countries. Things aren’t perfect, but the vibes are definitely up. And even if the economy does take a turn, a run-of-the-mill recession probably wouldn’t be enough to topple the housing market. Things would have to get so bad that banks would be forced to walk away from the mortgage-lending space almost entirely, as they did during the foreclosure crisis. If the market is cratering and nobody can get a mortgage to put a floor on prices, “that’s where you get pretty meaningful declines in asset prices,” Palacios said.

There’s a silver lining baked into all this: Prices aren’t poised to drop, but the days of skyrocketing valuations appear to be behind us, Mohtashami told me. The housing market is far from balanced, but we’re at least heading in that direction.

After the past few years, the lingering fears of a sudden fallout are just a distraction from the bigger issues at hand. The bubble debate was fun; now it’s time to put it to bed.

James Rodriguez is a senior reporter on Business Insider's Discourse team.