Housing bubble 2.0? Regional housing markets are beginning to look like they did in 2007

When the U.S. housing bubble burst more than a decade ago, it brought the global economy to its knees. It turned out that the multiyear housing boom through the early 2000s was hiding skeletons. Homebuyers, driven by a fear of missing out on home price gains, were stretching themselves well beyond their financial means. And zealous lenders were giving out mortgages (or better put, subprime mortgages) to folks who historically wouldn't have qualified. As that credit rushed in, it helped to drive the housing boom. However, as the housing market corrected, those bad loans created a foreclosure crisis that took many of the nation's biggest financial firms, like Bank of America and Citigroup, to the brink.

Fast-forward to today, where the U.S. housing market is once again going through a historic housing boom. Over the past two years, U.S. home prices are up 34.4%—including a 19.8% jump over the past 12 months. That 12-month hike is more than four times greater than the historic annual average (4.6%) posted since 1987. It's also well above the largest 12-month price jump (14.7%) posted in the years leading up to the 2008 financial crisis.

Our ongoing housing boom has more economists pondering the most feared word in real estate: “bubble.” In March researchers at the Federal Reserve Bank of Dallas sent chills down the spines of homebuilders and real estate agents when they released a paper titled "Real-time market monitoring finds signs of brewing U.S. housing bubble." The Dallas Fed researchers found home prices were becoming detached from economic fundamentals (i.e., household incomes). However, if a housing correction does come to pass, the Dallas Fed researchers don't think it would cause macroeconomic issues like we saw from the last bubble. Unlike the last go-around, they write, "household balance sheets [today] appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom."

That said, some regional housing markets could be in full-blown housing bubbles. At the very least, many markets are priced exorbitantly compared to what local income levels can support. That's what Fortune found after looking at an analysis by the Real Estate Initiative at Florida Atlantic University. Each month, researchers at the university calculate how overpriced or underpriced home prices are in America's 100 largest housing markets.

In their own words, here's how the Florida Atlantic University researchers say to read their housing analysis: "A positive score represents a premium, implying that the average property in a metro is selling above its historical implied price. A negative score represents a discount, implying that the average property in a metro is selling below its historical implied price."

Let's look at the data.

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At the latest reading in March, Florida Atlantic University researchers found every one of America's 100 largest housing markets overpriced relative to what economic fundamentals in the market would support. That includes 44 markets overpriced by at least 30% and 13 overpriced by at least 50%.

The most overpriced markets are Boise (by 75%); Austin (66%); Ogden, Utah (63%); Las Vegas (60%); and Atlanta (60%). Those places have all seen an influx of new residents amid the pandemic's "work from anywhere" boom. That, in part, explains why home prices there have soared well above what local incomes can afford. It also raises the question: If a 2023 recession does come and employers finally have the economic power to force staffers back into the office, will those housing markets be at a higher risk of home price correction?

To find the housing markets that are most fairly priced relative to household incomes, just look for the places that saw an exodus of workers during the pandemic. Case in point: The metros of New York City and San Francisco are overpriced by just 3% and 13%, respectively.

Mark Zandi, chief economist at Moody's Analytics, doesn't foresee a housing bust over the coming year. However, he says "overvalued" housing markets could see home prices fall 5% to 10% over the next 12 months while national home price growth flatlines to zero. Why? The economic shock caused by spiking mortgage rates this year, he says, should finally rein in the rate of home price growth. We're already seeing signs of a cooling housing market.

While Moody's Analytics own research finds 96% of housing markets are overvalued, Zandi won't call this a housing bubble. In order for it to be a housing bubble, it would need both home price overvaluation and speculation in the market. Unlike in the FOMO-driven 2000s housing market, Zandi doesn't think speculation is driving our ongoing boom.

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What's notable about the ongoing housing boom is the whiplash. Just two years ago, the housing market was reasonably priced relative to incomes (see chart above). In March 2020, only nine housing markets were overpriced by over 10%, according to Florida Atlantic University's calculation. Back then, Spokane, Wash. (overpriced by 26%) was the most overpriced housing market. As of March 2022, Spokane is now overpriced by 55%—which doesn't even put it in the top five—while 90 out of the nation's 100 largest markets are overpriced by 10% or more.

At first glance, one might assume the COVID-19 recession dragged down the March 2020 numbers. It didn't. The ratios created by researchers at Florida Atlantic University were essentially the same in January 2020 as in March 2020. Simply put: March 2020 is a good point of reference.

The difference between March 2020 and March 2022 speaks to how historically fierce the housing market has been during the pandemic. In a matter of two years, we've flipped from a normal housing market into one that is historically overpriced.

View this interactive chart on Fortune.com

In order to find a housing market that closely resembles the current market, you'd have to travel back to the years leading into the 2008 housing crash. Back in March 2007, 99 of the nation's 100 largest housing markets were overpriced; 40 markets were overpriced by at least 30%, and 19 by at least 50%.

While the top-line numbers in March 2022 and March 2007 are eerily similar, there is one striking difference. In 2007, many of the nation's most overpriced housing markets were in California, New York, and Florida. This time, Florida has a heavy concentration of overpriced markets, but California and New York (which have both seen an uptick in out-migration during the pandemic) rank much lower. Look no further than Los Angeles. In March 2007, it was overpriced by 62%. As of March 2022, Los Angeles is overpriced by 10%.

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The last housing bubble was anything but even. As the housing market crashed through 2008, overpriced markets like Phoenix and Las Vegas got absolutely crushed. Not only were home prices in those markets booming, so was new construction. But as the market slumped, Phoenix and Las Vegas became oversupplied with sprawling new subdivisions. That oversupply drove home prices down faster, and made the foreclosure crisis in those markets even worse.

This time around, Phoenix and Las Vegas are once again among the most overpriced housing markets. In March 2007, Phoenix and Las Vegas were overpriced by 59% and 72%, respectively. In Florida Atlantic University's latest reading, those two markets are nearing their previous highs. As of March 2022, Phoenix is overpriced by 55% while Las Vegas is overpriced 60%. Even worse: Phoenix is once again among the U.S. leaders for new construction. If a housing correction does come, Phoenix could quickly become oversupplied.

If you’re hungry for more housing data, follow me on Twitter at @NewsLambert.

This story was originally featured on Fortune.com