Housing prices have been rising steadily, but rumors of a new housing bubble are tempering optimism. Many reports are suggesting that the current housing bubble is greater than the one that formed in 2006 and burst in 2008. But is there any truth to these dire predictions, or is it just media hype and speculation?
Overvalued Homes Don’t Equal an Impending Crash
Compared to the first three months of 2015, twice as many metropolitan home markets are now considered “overvalued.” Overvalued here means that the prices are inflated compared to income. The media says prices are likely to come crashing down, yet experts say this isn’t the case. Just because home prices are overvalued doesn’t mean there’s an impending crash. Overvaluation sometimes occurs naturally due to prevailing economic conditions. This kind of overvaluation is little more than an aberration, quickly corrected when supply meets demand.
What’s Fueling Rising Prices?
At $236,000, the average sales price of a home in the United States is now above what it was in 2006. Prices in 14 of the 100 largest metropolitan markets in the country are now above their historical averages. Look a little deeper, however, and there are reasonable explanations for the spike in prices. Of the 14 metropolitan markets mentioned above, six are in Texas, which recently experienced a huge oil boom. Texas may serve as a microcosm for what’s happening in the rest of the country.
High Demand, Low Supply
The most fundamental principle in economics is supply and demand. It just so happens that this very simple economic truth is the cause of the so-called bubble; housing demand across the country is high, and supply is near record lows.
Ten years ago, the bubble was caused by free, easy credit that led many people to take out mortgages they couldn’t afford. This isn’t the case today—not at all. Recent mortgage regulations are now beginning to take effect, and lenders and borrowers are more informed and acting more responsibly.
The Verdict?
Don’t let the dire predictions in the media get to you. Mortgage rates are nearly 5% lower than their historic averages, making it an excellent time to think about becoming a homeowner.
Real Estate Services from Vanguard Title
Vanguard Title provides title insurance and escrow services for lenders, realtors, and buyers across the state of Michigan. For information on how we streamline the closing process, visit our homepage.