With Peter van Doren
U.S. house prices surged in 2020, rising 11.2 percent for major metropolitan areas according to the Case–Shiller Home Price Index and 12 percent according to the Federal Housing Finance Agency. This has raised concern that a new housing bubble has formed and is threatening a repeat of the “Great Recession” of early this century.
If “housing bubble” means that home prices rise in a relatively short time and then fall back to long-term trend, then a bubble likely has formed over the past year. But this bubble, by itself, would be different—and less ominous—than what happened early this century. That said, there is something troubling going on in the U.S. housing market and government should take steps to address it.
The sharp increase in U.S.