Healthy Real Estate: Bursting Bubble Fears on the Rise
“Prices are increasing quickly, though that may not always be the most healthy development for the economy. Also, banks may soon loosen overly strict requirements, but a choke point remains in new-home construction.”(source)
“The median home price jumped 8% from the previous month to $208,000, according to NAR. While month-to-month price swings are not unusual, the year-over-year rise is now 15%, and prices are at levels last seen in the summer of 2008, just before the bursting of the housing bubble.” (source)
The housing recovery is in full swing. The surge in themarket caught many by surprise with how fast and how swiftly demand for new homes and the selling of homeshappened. There are still too many buyers seeking to buy in a market with too few homes for sale. For most, all this news is vibrant and wonderful.
There is always caution that must be mixed into the equation when it comes to the real estate market.
- Although fast-rising home values are great for home owners, price increases that go beyond the growth of income create a weak point within the economy that will have to balance itself out eventually.
- The potential loosening of underwriting restrictions will normalize the lending environment but this too will contribute to a faster price growth. Making it easier for buyers to buy will only put stress on the already limited inventory on the market.
- New-home construction breached the 1 million mark for the first time in five years in March. Currently, 1.5 million new housing units are needed annually to keep pace with the price gains to keep the market stable and healthy.
All of these currently optimistic headlines the real estate world is seeing are all red flags in and of themselves as well. The market is amorphous unit and will adjust to re-balance itself in time. Too fast of a recover can potentially mean an equally fast decline when the market constricts. One eye on the present and one eye on the future.