Is the housing market really 20% overbuilt?

I’ve been hearing some chatter lately that the uptick in home buying that started in February of 2020 (before COVID, by the way) and has continued into 2021 is being substantially driven by a national emotional state of fear of missing out (FOMO). Now, I understand emotional eating (me, plus Halloween, plus a big bowl of Reese’s Peanut Butter Cups for instance) and even emotional buying (still whittling down hand sanitizers).

Still, emotional home buying seems like a stretch. Nevertheless, some supposedly erudite thinkers on the housing market are saying this, so I thought I should investigate.

If the housing market was in the grips of some mass hysteria of irrational purchasing, we would expect to see certain hallmarks in the data. First, purchase applications in the data should be skyrocketing as they did during the 2002-2005 ill-considered, home-buying extravaganza. The data shows a positive growth trend since the lows in 2014, but looking at the two trajectories, there is no comparison. Considering population growth and the current more favorable demographics for home buying, I would say purchase applications are precisely where we would expect them to be, sans nationwide hysteria.