By James Pethokoukis

Anyone who lived through the Great Depression was on high alert for decades for signs of a Second Great Depression. One sign of this: high dividend yields versus bond yields. People really had to be bribed to invest in stocks. Bond yields and dividend yields didn’t flip with the former rising above the latter until 1959 — the first time in three decades.

Likewise, those of us who lived through the Global Financial Crisis will probably continue to be on a high alert for housing bubbles and busts. And headlines like this one from a Goldman Sachs report this morning will surely raise eyebrows: “Home Prices Increase at the Fastest Pace on Record in February.” As the report continues:

The S&P/Case-Shiller 20-city home price index increased by 2.4% in February (mom sa), above consensus expectations and the largest month-on-month increase on record. The year-over-year reading increased by 1.3pp to +20.2% (nsa) and a new all-time high. . . . The FHFA house price index increased by 2.1% in February (mom sa), also the largest month-on-month increase on record, and the year-over-year rate increased by 1.2pp to +19.5% (nsa), also a new all-time high.

So is it time to freak out, especially with interest rates rising and apparently ready to stick a pin into a possible bubble? I think there’s a strong argument against an economy-wide housing crash, even if some markets do suffer price declines at some point. In a new analysis, economist Mark Zandi of Moody’s Analytics points to cities (Boise, Orlando) and regions (Mountain West) that benefitted from pandemic-era flight and relocation by remote workers as places that might be hurt with office towers reopening in big cities in their former homes.

But Zandi also highlights two important anti-crash factors. First, tighter lending rules since the GFC mean “lending has been much more restrained in the current house price boom. Mostly only 30- and 15-year fixed rate mortgages are being originated.”

Second, there’s a home shortage that didn’t exist a decade ago. As Zandi notes: “The vacancy rate for homes for sale and rent is close to an all-time low 2.5%. This compares with an all-time high of 5.5% during the housing bubble, as the vastly overbuilt market was a significant factor in the subsequent housing bust. . . . It is difficult to envisage house prices falling much for very long with such a lack of homes.”

The post The Two Charts That Should Calm Fears of a Housing Crash appeared first on American Enterprise Institute – AEI.