Many of you may have recently seen a chart circulating online suggesting a nationwide collapse in home prices is on the way, that we are in the “biggest bubble in history” and that a collapse is “inevitable and nothing can stop it.”

The claim is that, because home prices adjusted for general price inflation are now even higher than they were during the previous bubble that peaked nearly 20 years ago, the coming crash “will be even worse.”

Just to refresh our recollections, the bursting of the last bubble led to a massive decline in home prices. The national Case-Shiller home price index fell 27% in the five years ending in early 2012. An even larger decline today could be devastating for the U.S. economy.

But we don’t think this is going to happen.

First, it’s important to recognize that one of the reasons housing is so unaffordable is that we have a set of government policies that boost home prices while reducing after-tax incomes. These include state and local regulations that stifle home construction, government-sponsored enterprises that artificially boost mortgage lending without increasing housing supply, and a fiscal spending and tax system that leaves potential homeowners with less ability to accumulate a down payment or meet monthly income requirements.

Existing home sales posted a modest gain in October to hit an eight-month high, though activity continues to trudge along at a disappointing pace. The current rate of 4.100 million remains near the lowest since the aftermath of the great financial crisis, and well below the roughly 5.250 million annual pace that existed pre-COVID (let alone the 6.500 million pace during COVID).

Sources: National Association of Realtors, Haver Analytics

Sources: National Association of Realtors, Haver Analytics

Today’s housing market dynamics are different

When government at all levels spends more than 35% of GDP—and when the overall cost of government, including regulations, is roughly 50% of GDP—there is less left over for what workers actually want versus what the government wants us to have.

Second, the same analyst now issuing apocalyptic warnings about the housing market did so in June 2019. Since then, home prices are up 57% overall, or 7.6% per year, while the overall consumer price index rose 3.9% per year.

Third, there is a key difference between the bubble 20 years ago and the current environment. We had massive overbuilding in the prior bubble, with housing starts averaging 1.9 million per year from 2002 to 2006, versus an average of 1.5 million in the past five years.

To see the importance of housing supply, imagine a hypothetical world in which the government decided to ban all new housing construction. What would we expect to happen to home prices relative to the general consumer price index? Obviously, home prices would go way up due to limited supply. Home prices would also be higher relative to wages.

Clearly, this would be bad policy; we would never want the government to ban homebuilding. But if it did, the rise in home prices relative to overall prices and wages would not be a “bubble.” It would be what the remaining market forces would require: higher home prices to reflect housing scarcity unless and until the government ended the idiotic ban.

In a way, that’s what has happened, but not as extreme. Government has limited homebuilding through environmental rules, zoning, and “affordability” concerns (the latter of which end up making homes less affordable). As a result, homes are scarcer than they should be, and home prices have risen relative to the price of other goods and services. In addition, with so much land unavailable for development, a larger population means higher prices, as well.

One issue to note is that strict immigration enforcement so far this year is probably putting modest downward pressure on prices. Case-Shiller home prices were down 0.7% in August versus January. Yes, strict enforcement should lift the cost of building new homes as the labor supply tightens. But it also makes more rental units available, which should put downward pressure on rents and let potential homebuyers wait longer before buying. In turn, that means downward pressure on the price of existing homes. 

None of this is to say all is well with the U.S. economy. The stock market looks priced for perfection and is underestimating recession risk. But a housing collapse is highly unlikely—and one worse than the last is even more so.

Editor’s note: Brian Wesbury is chief economist at First Trust Advisors LP. He and his team prepare a weekly market commentary titled “Monday Morning Outlook,” as well as frequent research reports and the recurring feature “Three on Thursday.” Proactive Advisor Magazine thanks First Trust for permission to republish an edited version of this commentary, which was first published on Nov. 24, 2025. Additional charts from commentary published on Nov. 20, 2025.

This report was prepared by First Trust Advisors LP and reflects the current opinion of the authors. It is based on sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

The opinions expressed in this article are those of the author and the sources cited and do not necessarily represent the views of Proactive Advisor Magazine. This material is presented for educational purposes only.