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Insight • Data • Economics • Analysis
Strong Growth Coupled with Housing Shortages May Signal Start of Another Housing Bubble
There are a handful of issues that nearly all Wisconsin communities are facing ranging from the availability of affordable high-quality broadband to persistent labor shortages to housing shortages. The housing issue, however, is driving many individuals and families to make difficult decisions about where to live and work. The collapse of the “housing bubble” of the mid-2000s, and the ensuing collapse of the secondary market for mortgages, resulted in the Great Recession.
There is rising concern that we may be entering a second “housing bubble” that could have significant ramifications on the larger economy. While safeguards have been put in place to prevent a repeat collapse of secondary financial markets, the potential economic pain to homeowners if history repeats itself could be significant.
Source: U.S. Federal Housing Finance Agency
One way to track the housing market in Wisconsin is to follow trends in house selling prices. The Federal Housing Finance Agency (FHFA) collects house transactions data (including multifamily units such as condos) which they then use to calculate the All-Transactions House Price Index which is available at the state and major metropolitan areas back to 1975. More recently, the FHFA has calculated the index for all counties in the U.S.
Based on this data for Wisconsin and a geographic representation of metropolitan areas across Wisconsin, several patterns can be observed. First, evidence of the “housing bubble” of the mid-2000s is clear, coupled with the collapse of the marker and the slow recovery. Also evident are differences across Wisconsin as to the severity of the bubble itself, post-bust decline, and slow recovery. For example, neither the Fond du Lac nor La Crosse markets experienced the housing “boom-bust” to the degree of many other areas of Wisconsin. Over the past five years some markets, such as Eau Claire, have experienced more rapid growth in house selling prices than other markets. But, of concern is the spike in house selling prices through 2021: every market examined here experienced sharp increases in prices despite the economic challenges resulting from the pandemic. The strong growth over the past few years coupled with the spike in 2021 is not only evidence of shortages of houses on the market, but also the start of another housing bubble. While the growth rate in the last quarter of 2021 slowed, the sharp increase in housing prices across Wisconsin is further evidence of challenges with the housing market.