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Are Housing Bubbles In the Past?

Forecast One BHDespite recent chatter about whether certain markets are entering housing bubble territory again, Realtor.com reports that though price appreciation is a concern, in regards to other contributing factors to housing bubbles, these potentially risky cities are far from facing a housing bubble.

In a research report conducted by Realtor.com, the answer to this chatter was sought in order to analyze the record-high median prices in high-profile growth markets like San Francisco; San Jose, California; and Austin, Texas.

According to the report, the U.S housing market has improved dramatically since the depths of the recession with home prices in particular growing significantly in recent years, nearing a full nominal recovery nationwide.

In the analysis, it was evaluated that a housing market’s bubble potential was based on six factors quintessential to the housing bubble and subsequent housing crisis in the 2000’s. These factors include real price appreciation, house flipping share of overall sales, mortgage transaction share of overall sales, price to homeowner income, price to rent, and new households per new construction starts.

Realtor.com research index measured each factor by market and compared it to its respective 2001 levels. This was a year they determined was when housing was considered to be in a healthy growth mode as well as justly valued.

The research determined that the cause for housing prices increasing is due to economic growth and household formation, paired with limited inventory, relative to rents and incomes. Despite this fact, Realtor.com has determined that there is no evidence of real risk to repeat the mid-2000s housing bubble. It actually was determined that what is occurring now is the opposite of what occurred during the housing boom of 2004-2006. They came to this conclusion do to credit remaining tight, flipping being not as rampant as it was in the time of the housing bubble, and new construction being shown to be severely constrained.

This doesn’t mean that certain cities are off the hook though. The rapidly rising prices taking place right now in cities such as San Jose, San Francisco, and Austin has been determined by the report to be unsustainable in the long term. This, though, is expected to naturally taper off be it from people choosing to rent over buy, move in with family or roommates, or relocate to a housing market that is more affordable.

The report notes that nationally, the housing market has 3 percent less risk than it did in 2001 as well as 25 percent less risk than it did during the peak in 2005. Despite the elevated real price growth at an estimated 7 percent in 2015, the other fundamentals such as flipping, new construction and mortgage share are well below the levels shown during the housing boom.

About Author: Kendall Baer

Kendall Baer is a Baylor University graduate with a degree in news editorial journalism and a minor in marketing. She is fluent in both English and Italian, and studied abroad in Florence, Italy. Apart from her work as a journalist, she has also managed professional associations such as Association of Corporate Counsel, Commercial Real Estate Women, American Immigration Lawyers Association, and Project Management Institute for Association Management Consultants in Houston, TX. Born and raised in Texas, Kendall now works as the online editor for DS News.
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