Lily asked, “Are prices accelerating too quickly, leading to another possible housing bubble?”

Her panel of experts answered here:


They don’t have enough room, apparently, to include data to support opinions, so let’s view some of the pertinent facts.  Only a couple of the commenters mentioned how our ultra-low mortgage rates have impacted affordability.

Impact of Rate Changes – How much you can borrow and keep your P&I around $4,800/month:

6.0% = $800,000

5.0% = $895,000

4.0% = $1,005,000

It was as recently as January, 2009 that jumbo mortgage rates were 6.0%, if you can get 25% more mortgage now and have the same payment, there’s no surprise that buyers have been willing to pay a slightly higher price over the last few months.

But dropping rates probably caused some buyer euphoria which translated into higher prices recently – but nobody expects rates to go any lower.  Hopefully we will see that steady rates = steady prices. This graph showed the overall impact of rates upon values – prices are still range-bound.



None of her panelists questioned whether using the region’s median sales price was an accurate way to measure “prices going up 13.7%”.  Let’s review other ways of measuring too:

Latest San Diego Case-Shiller Index: +6% year-over-year.

Zillow Home Value Index: +7.3% year-over-year.

Annual average cost-per-sf of detached-homes on MLS, 2012 vs 2011:  +3%

Suggesting that overall San Diego prices went up 13.7% in one year will sell some newspapers, but it was only in isolated neighborhoods that experienced real double-digit price gains in 2012.  I don’t think prices going up 3% to 7% per year, after the biggest downturn in the history of the world, is ‘too fast’ .



Let’s consider the history of prices during the fastest-appreciating times – the last ten years:

San Diego Metro Zillow Home Value Index

It might look like we are approaching faster speeds, but if prices were to rise further on thin volume, is it real?  We will need to see if buyers are willing to pay more when the market swells with inventory, and it would have to be a sustained period of 1-2 years to convince most people that double-digit price gains were real.

If the inventory stays low, expect more fluctuations – sometimes in a positive direction!

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