B-word incoming: On March 29, the Dallas Fed warned of a potential housing bubble — thanks to a hot housing market.

Per AEI Housing Center, US home prices jumped 31% in 2020 and grew 17% annually — while markets in Austin, Phoenix and Tampa have doubled that pace.

Analyzing housing like stocks

Fortune Senior Editor Shawn Tully analyzes the real estate market looking at whether housing is in a bubble in a recent article. Per Tulley, rent prices are vital in determining the direction of housing prices.

• Metric to watch: Price-to-rent (P/R) ratio — the housing equivalent to price-to-earnings (P/E) ratio.
• What it tells us: The higher the value, the more overvalued the market.

A company’s stock price fluctuates between its P/E ratio — often trending back towards its historical average. Per Tully, home prices move like stocks, returning to their historical P/R ratio over time.

When the market overheats — rent increases or home prices fall (or both) to bring the P/R ratio back to historical averages.

• Before the crash: In 2007, the P/R ratio in the US was 28% higher than its 15-year “norm.”
• After the crash: By November 2012, American home prices fell over 21% — with Miami falling 43% and Phoenix by 38%.

Where’s the housing market today?

Per Tully, the P/R of individual markets is significantly lower than in 2007 — while some, including Phoenix, Denver and Austin are above 2007 levels. These are the differences today from the 2007 bubble:

• Families buy a house to live in, not speculate — and aren’t using risky loans.
• Work-from-home has shifted demand from cities to suburbs.

Since the National Association of Realtors (NAR) started tracking inventory in 1999, the housing supply has been at record lows — offsetting pressure from rising interest rates. Rents are also recovering from COVID lows — increasing 17% for the 12 months as of February 2022.

Chief Credit Officer of Fannie Mae also thinks 2022 and 2023 will be strong years, with Tully seeing market on solid ground.

Investors: Yes, but stocks

With a 2022 return of -5.3%, the S&P 500 real estate sector has outperformed the broader S&P 500. The real estate component consists of real estate management and development services.

• Last Friday, CFRA upgraded the real estate sector — seeing it as “a strong inflation hedge” (Insider).
• Per CFRA’s Chief Equity Strategist, REITs benefit from properties’ short leases that can raise prices quickly.

Real estate investment trusts (REITs) are public companies that own and operate income-generating properties. During the ‘07 market crash, REITs fell over 70% — more than the S&P 500.

While the sector could be a safe haven from inflation — a housing crash could decimate the industry.

Correction: An earlier version of this article read “Chief Credit Officer of Fannie Mae also thinks 2022 and 2033”. The correct date has been changed to 2023