The 2000s housing bubble vs. the current housing boom

Housing prices. The price is reflected on the vertical axis, and the year is reflected on the horizontal axis.

There are obvious similarities between the current housing boom and the housing bubble that occurred during the early 2000s. Some of those similarities have even led some to call the current boom an asset “bubble” that was inflated by the Federal Reserve buying mortgage-backed securities galore. That could very well be true and people have talked about that elsewhere; however, I want to take this discussion in a different direction. I want to talk about the similarities and the differences between then & now.

Similarities

If you look at the chart above, the most obvious similarity between the current housing boom and the boom of the early 2000s is just the price of real estate. Prices have gone bananas since 2020. That steep increase looks very similar to the increase in 2004 and 2005. We should expect a pullback — a “reversion to the mean”. We also can’t rule out a crash.

Differences

The most obvious difference is the amount of leverage/debt attached to the real estate market. I don’t want to say that debt is always bad, but people were outright silly with leverage back in 2004 and 2005. Levering yourself to the center of the earth is not a good thing, and debt and falling prices are a deadly cocktail. But in case you don’t believe me, regarding how much debt is in real…