The latest home price data was released this morning, and there were a plethora of articles today about the “housing bubble” and whether we have or are facing one. Personally I do not think we are in a “bubble,” nor do I see one coming any time soon, but there are some who share the opposite view. The news today sheds some light on what is going on in the market, and whether or not to take the perspective that we are heading toward a bubble.
One post I read stated that the way to mention whether a bubble market exists is to compare housing prices to rental prices. In doing so the study found that home prices are not a big bargain compared to prices in March of 2012 (when the home price to rent ratio was roughly 50%), but on the same token the ratio is not as high now as the roughly 87% peak in May of 2006.
With so many mixed housing numbers it is hard to take a perspective. Zillow, taking the view that housing is getting back to “normal,” stated that “The reality is that the market is moving from one defined by distortions including high negative equity and constricted inventory, to one defined by fundamentals like household formation rates, jobs and income growth.” This view is true in the raw sense, but it also holds some implications for future buyers. For example, home sales will surge in areas where there is job growth. But in many of those areas housing is very expensive (think technology in Northern California or biotech industries in Southern California), so buyers may have to purchase outside of these immediate markets and commute.
The truth of the matter is that housing will grow or fail depending on several factors. Let’s start with economic and job factors. A big percentage of home sales in 2013 (about 1/3 according to data) and so far in 2014 have been cash sales, indicating that loans are still hard to come by and/or that those with money can and will purchase homes, and may not want to deal with the nuisance of obtaining a loan.
Obtaining a loan will also of course continue to play a role in home sales. Loan rates continue to remain low, and many lenders appear to be loosening the standards for lending, with some controversial products like adjustable rate mortgages (and I have heard rumors of stated income and personal loans) gaining in popularity once again.
Add to the future home sales growth predictions the fact that many young Americans are buried in student debt and will not likely have the ability to purchase a home for a long time. This affects household composition ratios as well, since many 20-somethings are now living or are moving back into homes with their parents in order to save money to pay off debt.
It will be interesting to see where housing goes from here. Here in North San Diego there are buyers waiting to purchase, but low inventory. It is a frustrating process, but it seems better than having homes sitting on the market with no buyers. So, like all housing periods I think we need to look on the positive side. Real estate has always been seen by many as a sound investment over time, and there will always be buyers and sellers. Right now is a great time to be a seller, and as long as there are willing and able buyers out there the market will continue to stay afloat.