Are Home Prices Approaching Bubble Territory?
As home values continue to rise, some are questioning whether we are approaching another housing bubble. Zillow just reported that:
“National home values have surpassed the peak hit during the housing bubble and are at their highest value in more than a decade.”
Though that statement is correct, we must realize that just catching prices of a decade ago does not mean we are at bubble numbers. Here is a graph of median prices as reported by the National Association of Realtors (NAR).
We can see that prices rose during the early 2000s, fell during the crash and have risen since 2013.
However, let’s assume there was no housing bubble and crash and that home prices appreciated at normal historic levels (3.6% annually) over the last ten years.
Here is a graph comparing actual price appreciation (tan bars) with what prices would have been with normal appreciation (blue bars).
As we can see, had there not been a boom and bust, home values would essentially be where they are right now.
Also just before the crash new home starts by builders were at an all time high in history, refinancing and equity stripping was at a historic all time high, poor underwriting criteria was at an all time high and housing ownership rates were at an all time high. It was the “perfect storm” of an unprecedented number of factors that contributed to the demise of the US Housing Markets. None of these factors are in play presently. Housing starts are still well below demand, underwriting criteria is extremely conservative, no lender is allowing equity to be stripped from homes any longer (used to be able to do 125% financing on a refinance and your credit and ability to repay never came into question – if you were alive you could get approved).
Also in South Florida our inventory is so low it is very hard to find a home for willing buyers. This drives up prices and many markets in the US are experiencing this problem. Simple economics – supply vs demand – little supply drives prices higher. Do not lose focus, find motivated sellers and match them up with the number of highly motivated buyers. Call Edgar, Dan or myself for help in pre-qualifying your buyers and sellers.