A Housing Bubble? Industry Experts Say NO!!
With residential home prices continuing to appreciate at levels above historic norms, some are questioning if we are heading toward another housing bubble (and subsequent burst) like the one we experienced in 2006-2008.
Recently, five housing experts weighed in on the question.
Rick Sharga, Executive VP at Ten-X:
“We’re definitely not in a bubble.”
“We have a handful of markets that are frothy and probably have hit an affordability wall of sorts but…while prices nominally have surpassed the 2006 peak, we’re not talking about 2006 dollars.”
Christopher Thornberg, Partner at Beacon Economics:
“There is no direct or indirect sign of any kind of bubble.”
“Steady as she goes. Prices continue to rise. Sales roughly flat.…Overall this market is in an almost boring place.”
Bill McBride, Calculated Risk:
“I wouldn’t call house prices a bubble.”
“So prices may be a little overvalued, but there is little speculation and I don’t expect house prices to decline nationally like during the bust.”
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices:
“Housing is not repeating the bubble period of 2000-2006.”
“…price increases vary unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20% less today than in the earlier period and the months’ supply is declining, not surging.”
Bing Bai & Edward Golding, Urban Institute:
“We are not in a bubble and nowhere near the situation preceding the 2008 housing crisis.”
“Despite recent increases, house prices remain affordable by historical standards, suggesting that home prices are tracking a broader economic expansion.”
We are at near bubble prices, so what does that mean?
Of course there are a number of factors that can change the current market momentum. Next year, we've just about been promised that the Fed will raise raise the benchmark rates. Last time this happened, we saw sizable jumps in interest rates. Many borrowers are affected dramatically in terms of affordability when interest rates climb. It's less of an issue in Orange County, but overall, this affects the market. Interest rates are a hot button daily and the talk now is why Trump shouldn't allow the Fed to raise rates. In the last downturn, the Fed used the drop in the benchmark rates to jumpstart the economy. If we do experience a downturn, the Fed doesn't have any room to kick the economy into gear again. We almost need an increase in the benchmark rates so that the Fed has room to drop rates if need be.
Tax Plan... What does the House approved tax legislation do to the real estate market? A lot. Click here to see our chart of the 429 pages condensed to one page. The House GOP plan limits deductions for new mortgages for the first $500,000 of the loan. Certainly this affects most homeowners throughout the county. The House and Senate want to eliminate the state and local income tax deductions - what does that do to affordability? Don't forget about property tax! The house wants to cap property tax deductions at $10,000. The Senate wants to eliminate the property tax deduction. Losing these deductions will reduce the affordability dramatically for most of the homeowner population. It will largely affect first time home buyers.
Moral of the story... these changes will affect everyone differently. There are benefits to some, while others may be disadvantaged. Call me, email me, text me to discuss more - (949) 981-9020 or [email protected]