These ivory-tower guys keep wasting their time debating whether to call this is a bubble or not using vague, mind-numbing graphs. From HW:
There is a lot going on right now in housing and mortgage markets. But one of the debates that continues to rage on is whether or not U.S. housing markets are in a bubble or not.
HousingWire’s own monthly HW Magazine talked about it in detail in our January issue.
So too has CNBC’s John Carney, in a post from late last year with the headline: Yep, it’s another housing bubble. And then on January 14 of this year, Peter Wallison at the American Enterprise Institute wrote a breathless op-ed proclaiming: The bubble is back.
But is it really a bubble just because home prices are rising again?
They say a picture is worth a thousand words, and this chart published today by rating agency DBRS in their annual overview of the RMBS market for 2014 suggests that anyone claiming a new housing bubble is simply ignoring the most basic housing fundamental of them all: nominal home prices.
Here’s a reality check for the bubble watchers out there:
Most markets haven’t yet reached their pricing level highs from the previous cycle, with the exception of two markets that saw the least amount of decline.
Those who want us to think there is a bubble cite the relationship between home prices and rental rates; or look at some calculated measure of affordability. And when those are out of whack, they say it’s a bubble.
But it could be that rental rates are themselves out of whack, not housing prices. And it could be that other variables are affecting affordability rather than just prices, too. Supply and demand factors can do funny things to ratios, all of which need to be read in context.
No analysis should ignore market fundamentals, should it? Can we really be building another housing bubble if home prices in almost every U.S. market right now haven’t even surpassed levels they once were at — even after the strong price rebound we’ve already seen in the previous year?
After five years of a housing economy that has been either horrible or just plain bad, it’s difficult to believe that one good year somehow suddenly puts the nation’s housing markets back into the bubble.
http://www.housingwire.com/blogs/1-rewired/post/28599-the-most-important-chart-in-housing-right-now
I don’t think housing is in a bubble, but that doesn’t mean housing prices are guaranteed to continue to rise or stay the same. Housing could decline and it still wouldn’t necessarily mean we were in a bubble. The bubble right now from the latest ZIRP QE policy of the fed is most likely found in stocks and possibly bonds. When that eventually pops I expect to see an impact on real estate. Not a crash in real estate but 10-20% down compared to current prices while the stock market is down 50% wouldn’t surprise me.
What would surprise me is QE actually working and asset prices actually being fairly valued right now.
Agreed – the only people saying the Fed is on the right track is the Fed.
Could $17 trillion in debt be the answer? It’s probably nothing more money won’t fix!
The National Debt has continued to increase an average of $2.59 billion per day since September 30, 2012!
(each citizen’s share of this debt is $54,470.21)
http://www.brillig.com/debt_clock/
Coastal Encinitas is well above the bubble peak. Look at any recent sale west of I-5.
The Fed is just trying to keep up with China (money printing), so is Japan.
China is by FAR FAR FAR the biggest money printer in the world.
Why we are losing the stimulus game.
And The lesson learned today is
Print first , Print fast, Print often
The FED/US Treasury/FNMA has accomplished the overarching goal of reflating the housing market sufficiently to shore up an insolvent banking system. Increasing manipulation via their control of supply and monetary offset seems unlikely.
It’s tempting to generalize real estate into a national housing market, taking current experience as an informing factor. However, Coastal North County San Diego is in the 99th% + percentile of pricing in the US for detached SFR per SF. So whatever you are seeing is waaaay out on the tail of the distribution simply because of the scarcity and desirability provided by that location.
Pro Forma, future price appreciation is a sketchy proposition as an overall trend in a lot of significant markets nationally. The principal reason that gets NO attention is the dismal future income prospects, i.e.: what kind of pay increases do you expect over the next 7-10 years that lead you to believe “stretching” for that house is a good idea.
The early career (Gen Y) and prime earning (Gen X) cohort are much less optimistic prospects (with reason) than 10 years ago and significantly lower than previous generations.
its a bubble to those who arent making money as prices climb.
Yes, it’s a runaway freight train for homebuyers on a fixed budget. The choices get worse every day.
You’ll hear the same arguments about the stock market.
Both are “bubbly”, but only insomuch as the entire economy is floating on upwards of 2 trillion dollars in artificial support. It’s anybody’s guess as to how long the party can continue.
Of course there is a bubble. Anytime the government gets involved and distorts the market a bubble will form. How big of a rise and fall is debatable and many things are intertwined (bonds, real estate, etc) because the printing presses haven’t stopped. People talk about the US economy possibly falling off a cliff. In my opinion we are already over the cliff and now just trying to figure out how to land.
If you understand the business cycle you’ll know that corrections in markets are necessary. However, what the government does is perpetuate the problem and thus we have bigger booms and busts. There will be another real estate correction and it will coincide with the failure of the dollar.