There’s no question about it: the price of homeownership has become downright staggering. Median home prices surged 7% in the first quarter, a 38% increase over the same period in 2020. 

“That’s basically off the charts, and it’s driving a variety of questions,” says John Chang, senior vice president and director of research services at Marcus & Millichap. Chief among them?  Whether we’re in a housing bubble.

“I don’t think so – bubbles are generally driven by speculation and in the case of the last housing bubble, very lax underwriting,” Chang says. He adds that pace of construction was a key factor leading up to the last bubble, just prior to the Great Financial Crisis: between 2003 and 2010, 2.8 million more housing units were built than the number of households that were formed.

“There was a housing surplus, and eventually the easy underwriting and speculation forced prices to reset,” Chang says. But since 2011, the US has produced fewer units, creating a shortage.

“We’ve effectively run out of available housing units, so it’s very difficult to form new households now. That’s creating pent up demand,” he says. In addition, apartment vacancy now stands at a record low 2.4%.

“There aren’t enough housing units to allow people to move out on their own, and that’s driving the market…The situation is very different than it was before the last housing bubble,” Chang says. “Rather than an oversupply of housing, with very loose underwriting, we have a housing shortage with generally sound underwriting.”

Chang’s analysis comports with recent research from Moody’s, which finds there is little evidence of a housing bubble that is about to burst.” Moody’s data shows that the lowest tier of the housing market appreciated by 17.2% in the past year alone, while mortgage rates are now more than 2.5% higher than the lows to which the buying public has grown accustomed.

“Climbing mortgage rates, coupled with already unaffordable housing, especially for first time buyers, will finally crack housing demand,” Moody’s analysts note, adding that the “extreme price gains” of 2021 have led to housing prices that are 21% overvalued. By way of contrast, homes were 24% overvalued at the peak of the pre-GFC housing bubble.

Homeownership is also increasingly out of reach: two years ago households had to earn $73,400 to qualify for a mortgage on a median priced home.  About 45% of US households could clear the hurdle.  But by April, buyers needed more than $113,000 in income to qualify for the same home, and only 26% of households can qualify. And as interest rates rise, that number will shrink, Chang says.

That’s good news for multifamily owners and investors, many of whom have moved to a buy-and-hold strategy for single-family housing.

“Over the short term, until a lot more housing units are built and housing supply and demand move back toward balance, apartment demand will remain very strong,” Chang predicts. Apartment rents are much more affordable than homeownership right now.”