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- There's a "classic supply-demand imbalance" in the housing market, Shiela Bair told CNN.
- The former FDIC chair, who served during 2008 housing crash, said home prices are unlikely to ease anytime soon.
- A crash today won't be as bad as last time because homeowners have more equity in their houses, Bair added.
Anyone who hasn't been living under a rock knows the housing market is not doing so great right now. Home prices are way too high, mortgage rates are way too high, and housing inventory is way too low.
For Sheila Bair, it's all too familiar.
The former chair of the Federal Deposit Insurance Corporation saw the housing bubble burst in the mid-2000s. Back then, the housing market collapsed after years of low interest rates, lax lending practices, and speculative buying inflated housing prices.
Fast forward to 2023, and home prices are absurdly high, with median price of an existing home sitting at $407,100 in August, below pandemic-era peaks but still up from $278,200 in August 2019.
"Talk about a bubble. That's a classic supply-demand imbalance," Bair told CNN in an interview.
In fact, the housing market's total valuation punched through $52 trillion dollars last month, and buyers are expecting home prices to continue rising.
For her part, Bair, who headed the FDIC from 2006 to 2011, said she doesn't expect home prices to come down anytime soon due to limited inventory.
"If supply remains constrained, this could go on for some time," she said.
According to NAR data, there were just 1.1 million existing unsold homes in August, down 14.1% from one year ago.
Another reason why prices are unlikely to see a reprieve soon is the relentless rise of bond yields, which has sent mortgage rates up to the highest level in more than two decades.
Those high mortgage rates are keeping potential sellers put, sticking to their low-interest rate loans. So, in spite of higher borrowing costs, the prices remain high because housing supply is far too low to meet demand.
"Letting that bubble deflate a bit would probably be a good thing," Bair told CNN. "People who already own their home – and I'm one of them – don't want to hear that. But for those who want to own, I hope home prices do come down."
Despite her view that the housing market is in a bubble, Bair doesn't see a crash like in 2008. This time around, homeowners have more equity in their homes than in the mid-2000s. That would prevent an outsized number of properties going underwater, like they did in the past.
"I see much less speculation in the housing market today, thank goodness," said Bair.