Are we headed to another Housing Bubble?

New Housing Bubble

Prices of homes are soaring at new levels and many people are asking, “are we headed to another housing bubble?”  A recent data by the U.S. Census Bureau indicates that the average price of a new home had increased by an average of $108,300 over the last 10 years.  From a median price of $205,100 in 2009, it went up to $300,200 in 2017.  Could this be the symptoms of a housing bubble?

What is a Housing Bubble?

A housing bubble is a rapid increase in the market for real estate properties until they reach unsustainable levels and then decline.  What fuels such a bubble are demand, speculation, and exuberance.  Bubbles in the housing market are very critical since although they are less frequent they relatively last longer and lead to economic losses that are twice as large.

The United States Housing Bubble

The last United States housing bubble started in the year 2000 but the impact was fully felt in 2008 when the United States government allocated over $900 billion to special loans and rescue allocated to the U.S. housing bubble.  About 56% of home purchases during this period are from people who would not have been able to afford such purchases under normal conditions.  Relaxing regulations back then was the solution seen in catching up with the boom in purchases of new homes.

A graph showing the median and average sales prices of new homes sold in the United States between 1963 and 2010.
Is the housing bubble forthcoming?

With the recent passage of a new tax reform bill, it is seen to have an effect on wages and the price of housing.  Home prices are already at an all-time high in more than 112 metropolitan areas according to a report by the National Mortgage News.  With wages increasing and prices of housing more affordable, there could be a gap between the two and might result in another housing bubble.

Another thing that can indicate a possible contributor to a housing bubble is a possible law that could make mortgage a lot easier.  There is a proposal in Congress and the Senate to either repeal or reform the Dodd-Frank Law.  This law set restrictive measures to mortgage lending as a response to the financial crisis in 2010 – the housing bubble and foreclosure crisis.   If this bill passes legislation then getting a mortgage will be easier and there might be another homeownership boom.

Some areas where there is a presumed housing bubble include:

  • San Antonio-New Braunfels, Texas (Comal Country) with 77% affordability
  • Bellevue, Washington (King County) with 95% affordability
  • Portland-Vancouver-Hillsboro, Oregon-Washington (Yamhill County, Oregon) with 84% affordability
  • Sacramento-Roseville-Arden-Arcade, California (El Dorado Country) with 98% affordability
  • Seattle-Tacoma-Bellevue, Washington (Snohomish County) with 94% affordability
  • San Francisco-Oakland-Hayward, California (Contra Costa County) with 94% affordability
  • Medford, Oregon (Jackson County) with 98% affordability
  • New York-Newark-Jersey City, N.Y.-N.J.-PA (Kings County, New York) with 89% affordability
  • St. George, Utah (Washington County)
  • Nashville-Davidson-Murfreesboro-Franklin, Tennessee (Williamson County) with 94% affordability
Assurances that there will be no housing bubble

The major reason for the 2008 housing bubble is was an extreme rise in the demand for housing due to an overly easy access to credit.  In the current time, the increase in demand is due to the fact that there is very little supply growth.  There are fewer new homes in the market due to slump in construction.  Also, as this new home is on the market, people willing to buy does not increase significantly.

Affordability at the present time is due to lower interest rates and higher wages.  Once interest rates become higher they will once again be at par with the increase and wages thus affordability will be lower causing a lower demand.  As demand becomes lower the prices of housing will eventually level off.

Experts assure that there is nothing to worry about a repeat of the housing bubble at the moment.  However, we also have to maintain the fact that this is a recurring factor and it might be happening sooner than we know it.






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