Realtor.com®: ‘This Is No Housing Bubble’

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Home prices are rising at a more rapid pace than they were just a few months ago, as demand outpaces supply. Existing-home sales surged 9 percent year-over-year in March and home prices were up 8 percent over last year, according to the National Association of REALTORS®.

What’s more, with tight inventories plaguing many markets, the median list price in March climbed 11 percent over last year, reaching $220,000, realtor.com® reports.

With home prices heating up again, could the housing market be heading for another bubble?

“During the peak years of the housing bubble, from 2003 to 2005, the data on supply versus price appreciation looked very similar to what we are seeing now,” writes Jonathan Smoke, realtor.com®’s chief economist, in recent commentary at the site. “But there are key differences, which is why I’m confident that on the national level, this is no bubble.”

Smoke says these home price increases will stick because the market is correcting for severe price declines in the recent past. Prices rose 7 percent and 12 percent in 2012 and 2013, respectively. Median prices have climbed less than 8 percent on a compounded annual basis over the past three years. On the other hand, from 2002 to 2005, median prices rose 10 percent on a compounded annual basis – and had no justification of a bounce from a prior decline, Smoke says.

“On an inflation-adjusted basis, we are 30 percent beneath the peak set in 2005,” Smoke notes. What’s more, “relative to rents or incomes, median home prices are not ‘unhinged’ from long-term averages,” Smoke writes. In 2005, the price-to-rent ratio was 35 percent higher. Currently, the price-to-income ratio is where it was in 2001 and it is about 30 percent below where it was in 2005.

Smoke also notes that during the housing bubble, mortgage financing saw rapid expansion, and flipping activity based on speculative investing soared—neither of which are occurring now.

“Today’s higher prices are only to be expected as the economy improves and first-time buyers gradually return to the market,” Smoke writes. “Eventually, those higher prices should encourage more owners to list their homes and builders to start construction on new housing—which in turn should solve the problem of supply.”

Source: www.Realtors.org

Photo by: http://static.neatorama.com/images/2009-07/bubble-popping.jpg

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One response to “Realtor.com®: ‘This Is No Housing Bubble’

  1. Jason Hilliard says:

    The article definitely gives food for thought! In the event that new residential development begins to slow or doesn’t increase and sellers are not motivated to list; within the next couple of years we could then see some issues if values continue to grow at the rate they are.

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