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Real Estate not even close to a housing bubble

The recent improvements in the real estate industry left many experts fearing another housing bubble. However, Trulia’s Bubble Watch has denied anything similar to a housing bubble. The bubble watch works by comparing the current housing industry conditions, prices, and sale patters with that of the past.
 
According to Jed Kolko, the Trulia Chief Economist, the income level decides the number of people who can afford housing and an increase in the prices of the house not relative to the income level will not sustain longer. One of the best method to understand the value of housing with the consumer’s perspective is the analysis of the rent-to-price ratio.
 
According to Trulia, the national home prices in the second quarter of 2013 are 7 percent below their expected value. When compared to the 39 percent overvalued home prices at the time of the peak of the housing bubble (2006, first quarter), the national house prices were 15 percent undervalued during the fourth quarter of 2011.
real estate bubble 
Some other facts supporting this notion include the low home construction rate and tight underwriting standards, as mentioned by Kolko.
 
However, with the gain in home prices as high as the peak period of the bubble, some experts are finding it really difficult to dismiss the possibilities of a market distortion.
 
According to Trulia’s analysis, as many 9 markets out of 100 have overvalued prices. These markets are listed below:
 
1. California Metros of the Orange County (9% overvalued)
2. San Jose (3% overvalued)
3. Texas Metros of Austin (7% overvalued)
4. San Francisco (2% overvalued)
5. San Antonio (5% overvalued)
6. Portland, Ore (1% overvalued)
7. Houston (2% overvalued)
8. Honolulu (0.01% overvalued)
 
Some other factors adding to the suspicions include shortage of inventory and large number of desperate buyers as reported by short sale agents. According to Kolko, if the increase in home prices exists in the years to come, there are possible chances that the home value will become inflated in the near future.
 
However, Kolko listed three reasons because of which nothing of this sort will happen.
 
1) An increased home production will boost the inventory and more sellers will put their houses on the market.
2) With the improvement in the economy, the mortgage rates will improve.
3) Investor demand will drop down with diminishing home affordability.
 
What do you think?
 
Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert.
 
She also is an avid blogger, vlogger, contributor to the Bigger Pockets Blog, and consultant on all things Arizona Foreclosures.


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