The New Housing-Bubble Myth

Hello there,

Today we are going to dispel the recent talk about a potential new housing bubble forming.

August2013-11

Because the housing market is recovering and prices are up from where they were over the last several years, some people claim that we are headed for disaster again. However, this is simply not the case–at least not right now.

Take a look at this chart. I will fully explain it below, so if it seems confusing, bear with me and it will all make sense in a moment.

August2013-12

The chart shows eight cities in the country that have appreciated the most since the bottom hit in 2006. All of these eight cities are up over 20%, but what this chart is showing you is how far they are still down from the top. In other words, even though they show over a 20% appreciation since the bottom, they are nowhere near the prices of 2006–the peak. This is great news.

Let’s dissect the chart to make it really clear. Look at Las Vegas. This city appreciated over 20% since 2006, yet it is still down over 50% from the peak. Phoenix is still down over 40%.

Here’s a quote that supports this chart. It is from Jed Kolko, the Chief Economist for Trulia. He said:

“Rising home prices have swept the country… However, these runaway price gains won’t last: both rising mortgage rates and slowly growing inventories should start tapping the brakes on home prices, preventing them from rising back into bubble territory.”

I’d like to show you one more chart. This one is from the Case Shiller Price Index:

July2013-10

In this chart, there are twenty cities represented from across the country. The green indicates the price changes of homes in just over the last 12 months. You can see that prices went up. However, the red bars show that home prices are down pretty dramatically from the peak. So we can see again that housing prices are nowhere near what we had in 2006.

In summary, we know that housing prices are up, but they are still down substantially from the prices of 2006. Inventory is starting to grow because people are becoming more comfortable with putting their homes on the market. And, mortgage rates are rising which will slow down what people can pay for a home (this will be tomorrow’s topic).

Until prices start approaching those of 2006, there simply is no bubble forming. Whew!

Enjoy your day!

P.S. I am working on resizing my charts so that they will be more readable for you.

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