CLEVELAND — The booming housing market has been making headlines nationwide and right here in Northeast Ohio. One of the contributing factors of the current situation: low-interest rates.
But experts are hoping things calm down soon before they spill into other areas of the economy.
Most economists don't believe the market will crash as it did in 2008. At that time, a surplus of home buyers were being granted mortgages they couldn't afford, putting themselves in dangerous financial situations. This time around, those aren't the factors at play.
"I think right now where there is less concern about a housing market crash them than it was last time around when we had the housing market collapse," said Dr. Bill Kosteas, an economics professor at Cleveland State University.
Dr. Kosteas said this time part of the issue is low-interest rates and part of the issue is supply and demand.
When the pandemic first began construction of new homes slowed, thus leading to smaller supply and higher demand.
"You're seeing a lot of demand for housing for single-family homes because people wanted to get out of out of cities during the pandemic and longer-term," he said.
Now the debate has become, what can be done to prevent a crash from happening?
"When those interest rates go up that raises the total cost of financing a home," said Dr. Kosteas.
And the desire for more spacious homes could come down - in turn, driving down demand.
"If they wait too long to raise rates or don't raise aggressively enough, inflation expectations could really get settled in," he said.
But economists worry if the federal reserve overreacts to high home prices and raises interest rates too early, it could stunt recovery in other areas of the economy.
"And that's the fear, is that once expectations of high inflation settle in, it's going to be a lot harder to bring inflation back down."
With rising COVID-10 rates and businesses still clawing their way back, it's hard to tell how much longer this could last.
"So many variables out there that are in play and they could go in a variety of directions," he said.
Other economists are also calling on the federal reserve to raise interest rates to help renters. Because rising home prices also mean higher rent and that could pose big problems for lower income families which could contribute to homelessness. An issue many large cities already struggle with.