The term “bubble” gets thrown around often nowadays, but does data support such statements?
The great housing bubble of 2001 to 2008 was a mammoth economic event, one that pulled the housing market through a verifiable roller coast ride and plunged the nation’s economy into its worst downturn since the Great Depression.
The effects of that downturn are still being felt today, and because of that, real estate professionals and analysts alike are on high alert for the next bubble, and are adamant that we spot it before it’s too late.
So with that all in mind, the question beckons – though home-price growth has slowed this year, did the exuberant months of 2013 shoot us back into bubble territory? The short answer is mostly no, and we have a couple of great graphs (courtesy of fresh number crunching from Trulia) below to show why.
First, here is a graph that shows where home prices were in the nation’s largest metro areas in 2006’s first quarter, compared to fundamentals:
Clearly, the housing market in early 2006 was a bit out of whack, and with the exception of our markets of Dallas and Houston, just about every market was inflated beyond fundamentals – especially Miami.
By comparison, take a look at where home prices are right now, compared to fundamentals:
As you can tell, things have changed a bit. Though prices in Miami are not super overvalued, they’re still 5 percent above fundamentals, so we should pay attention to where prices progress through 2014 and into 2015.
I will be watching, Peter. Good read.
MY DEFINITION OF ‘HOUSING BUBBLE’A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand (a shift to the right in the demand curve), in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases (a shift to the left in the demand curve), or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts. WHAT IF LENDERS IN MIAMI START RELEASING THE SHADOW INVENTORY AT A REAL PACE?