What to Expect in an Ongoing Home Price Bubble

Throughout 2021, the average sales price of a home rose 16%, reports Forbes, though some metro areas like Boise and Austin reported gains over 30%. In comparison, home prices rise no more than 5% a year on average, and even during the 2005 housing bubble, price growth stayed under 12%.

Market experts predict that current housing prices will stagnate for the coming year, though some regions with precarious price to income ratios could see a sudden drop depending on market conditions.

Higher home prices aren't necessarily a bad thing: They spur new construction, provide business for realtors and mortgage companies, create construction loans and home equity loans for banks, and increase the wealth of homeowners , who in turn produce more spending that benefits the economy.

The problem with rising home prices comes when they rise too fast, when they reach levels that are out of sync with economic reality, after which they crash back to their original value or even lower. After the 2005 bubble, average home prices began a four year slide that left them 20% lower, bankrupting homeowners, home builders and bankers in the process.

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