Elon Musk
Source: Wikimedia Commons

Elon Musk Is Concerned About the Housing Market, but This Time It’s Different

Anuradha Garg - Author
By

May 20 2022, Published 7:57 a.m. ET

After putting the Twitter deal on hold, Elon Musk has been sharing his views on everything, from the Biden administration to the housing market. Does Musk believe we're in a housing bubble?

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People are looking for signs of overheating in many sectors, especially housing, where prices are surpassing the levels seen in 2006 and 2007 (just before the housing bubble burst).

The U.S. housing market remains hot

Although the U.S. housing market is still very hot, it's showing signs of cooling off. Home sellers have been reducing their asking prices due to a drop in demand, but as enough sellers are backing out of the market, the supply-demand imbalance is still in sellers’ favor. Meanwhile, the average 30-year fixed mortgage rate remains close to a 52-week high. This should eventually reduce demand somewhat.

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housing bubble or correction
Source: Pixabay

Elon Musk warns of predatory lending practices and their impact

On May 14, Dogecoin co-founder Billy Markus (Shibetoshi Nakamoto on Twitter) tweeted that cryptocurrency was “created as a statement against central bank control right after the 2006 recession caused by predatory lending practices and other irresponsible nonsense, leading to the housing bubble bursting, rampant printing of money, bailouts, etc.”

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In response, Musk wrote that this was due to “axiomatic error” and the assumption that “housing prices only go up.” He added that, through predatory lending, lenders “dug their own grave—a lesson we should all take to heart, including me.”

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The housing bubble preceding the 2008 crisis had different beginnings. Predatory lending practices and innovative products such as subprime loans created a frenzy of mortgage lending that most people couldn't pay back, leading to mortgage delinquencies and foreclosures. That wave triggered the collapse of Lehman Brothers and a global recession.

Could the housing market bubble burst again?

Experts feel that although home prices have surpassed those seen in 2006, the situation might be different this time, in that there may not be a full collapse but rather a correction. Last time, houses were overbuilt, and this time around, there's a genuine demand from buyers because many are now working from home amid the COVID-19 pandemic. Housing shortages in parts of the U.S. are also driving prices upward.

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