4 Reasons We're Still Not in a Housing Bubble, 6 Warning Signs Flashing

So, are we in a housing bubble? And what does that mean, anyway?

Well, a bubble grows as low supply and high demand combine to drive up prices. And it deflates as that dynamic flips and there are more houses than buyers.

This can happen quite rapidly, as it did in 2007 when the bubble flat-out burst and helped kick off the Great Recession, which lasted for several years. So, with record-high home prices now being met by soaring interest rates and recession fears, will we see history repeat itself?

Here are four reasons why we won't. And six reasons why we should at least be wary.

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Epic foreclosure numbers were one tragic feature of the housing crisis that began in 2007. We're not seeing that now. ATTOM Data Solutions says that while May foreclosures were nearly twice that of the same month a year ago and have risen for 13 straight months, it's a slow, steady climb back to historically normal levels.

ALSO READ: We're Not in a Housing Bubble. But We Could Be If This Happened

Lenders tightened their standards considerably after the debacle that helped fuel the housing crisis. Combined with record-low interest rates and much, much fewer adjustable rate notes out there, that means more affordable payments for millions of folks, especially in an economy that's still so relatively job-rich.

Multiple reports point to the millennials -- people now roughly ages 25 to 40 -- as prime drivers of steady, when not surging, demand for homes of their own for years to come.

Adding to that are the other studies showing that this generation's parents – the baby boomers – are hanging on to their homes longer than might have been expected, too. Altogether, this limits supply.

ALSO READ: Worried About a Housing Market Crash? The Smartest Real Estate Investors Know These 3 Things

Record-low inventory has marked the real estate market boom of the past few years, and that appears only to be slowly abating. Homebuilders continue struggling to keep up in most places as strong sales press on for existing homes as well, and supply remains well below historical norms in balanced markets. Ultimately, this is what will keep today's market from collapsing too fast.

A recent study from the Federal Reserve Bank of Dallas says price-to-rent and price-to-income ratios are rising enough to point to the possibility of a bubble brewing.

The Fed researchers point to prices being driven up by not only low interest rates and pandemic-related demand but also aggressive speculation by investors not wanting to miss out on the market boom.

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The monthly Beracha and Johnson Housing Market Ranking now has 15 metros listed as being at least 50% overvalued. The ranking from researchers at Florida Atlantic and Florida International universities says four of those markets are overpriced by at least 60%: Boise, Idaho; Austin, Texas; Ogden, Utah; and Las Vegas, Nevada.

The National Association of Realtors says sales of existing homes fell by 3.4% nationwide in May, the fourth straight such monthly decline. Rising interest rates and prices impacting affordability for many buyers get the blame here, but it's still a notable slowdown after two years of soaring year-over-year sales reports.

ALSO READ: Is the Great Housing Market Deceleration Finally Here?

Home price increases were up a whopping 20.4% nationwide year over year in April, which actually is down from 20.6% in March. That's the latest from the authoritative S&P CoreLogic Case-Shiller Index. This is a leading indicator and bears watching as interest rate hikes and other inflationary pressures continue to grind on the economy.

ALSO READ: What Is Inflation?

Bidding wars for homes in multiple markets across the country have been making headlines for the past couple of years, but now we're seeing reports of prices being slashed. A study just last month from Altos Research found prices dropping in 25% of the listings they analyzed, while Realtor.com saw it in 10.5% of the listings it saw in May.

Mortgage companies and big real estate operations have begun slashing staff as their volumes decline. If you consider that a sign of things to come, take note. Layoffs have been reported by the likes of Compass (NYSE:CMP) and Redfin (NASDAQ:RDFN) on the broker side and by JPMorgan Chase (NYSE:JPM) as well as First Guaranty Mortgage, which has already filed for bankruptcy.

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Even the skeptical Dallas Fed and Beracha and Johnson reports don’t expect the kind of sudden collapse we saw during the Great Recession. But there’s evidence that growth is cooling, and the law of gravity would seem to dictate some falling prices after such a sustained period of rapid growth.

So, buyer beware! Seller, too. All real estate is local, but no market is immune to market forces.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Marc Rapport has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Compass Minerals and Redfin. The Motley Fool recommends the following options: short August 2022 $13 calls on Redfin. The Motley Fool has a disclosure policy.