Is There Another Real Estate Bubble Heading This Way?
The real estate market is recovering so well that it might cause some to wonder whether a new bubble is in process. The fear of another real estate bubble blowing is completely unwarranted. The reason is that even with the recent increase in prices, the prices of national home remain 7% undervalue. National home prices remain undervalued in connection to fundamentals and much lower than in the previous bubble. That is the reason why today’s price gains are not a bubble, but actually a rebound.
The fundamental value is above the prices vastly in a majority of the country. Even in those certain parts of the country that remain overvalued, they come nowhere close to the percentages that were seen in 2006-2007. For example, consider the most overvalued markets of today. In Orange County, the prices are overvalued by currently 9% whereas the prices of the same region in 2006 were overvalued by 71%. Austin is the second most overvalued market of today. The Austin prices were shown 12% overvalued at that time.The real estate prices did not skyrocket as they did during the last boom in many other parts of the country.
Prices remain undervalued in 91% of the markets today. Even those markets that remain overvaluedare nowhere close to the 2006-2007 bubble’s numbers. Despite the recently sharp increases in the prices, they are still relatively low enough for fundamentals to steer clear of the bubble levels.
If all that still hasn’t put you at ease, here are three reasons which ensure that another bubble won’t be affecting the real estate market any time soon:
- Increase in Supply – Prices have been caused to rise by a lack of inventory that has created a market of multiple bids. As revealed by the latest report of The National Association of Realtors, there has been an increase from 4.3 to 5.2 in the month’s supply of inventory.
- Certain Demographics Will See an Increased Demand – Over the last several years, a large part of the housing market was owned by investors. As the prices continue to increase, a definite percentage of these investors are bound to back off.
- Increased Mortgaged Rates Would Render Buyers Incapable of Affording More – An increase in the mortgage rates has been projected by the bankers association over the next year. Buying powers will slide down as borrowers would no longer be able to afford the same price position as a result of the increased monthly payments.
These are the three major reasons that render the collective fears of a rising bubble unfounded.