How Will the Housing Bubble Burst?

Large-scale housing project of more than 600 homes in Oceanside, Calif., in 2018. (Mike Blake/Reuters)
Monetary policy has caused this bubble, and only monetary policy will cure it.

NRPLUS MEMBER ARTICLE H ome prices are increasing at the fastest rate that we’ve ever witnessed since we first began collecting data just over five decades ago. The chart below illustrates the annual rate of price increase for the Federal Housing Finance Administration’s quarterly data since 1976.

Low mortgage rates boost home values. The following chart compares the monthly Case-Shiller U.S. National Home Price Index to mortgage rates with the latter inverted such that lower mortgage rates move in the same direction as higher home prices.

With a wobble around the housing crisis, home prices generally have risen as mortgage rates fell. The future direction of

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