There Is No Housing Bubble

Higher inventory could help ease the pressure on prices this fall, but the talk about a housing-price “bubble” isn’t following suit.

What is a bubble? A little soap and water and a lot of hot air.

What is a housing-price bubble? The same thing.

Say you bought your house two years ago and paid $150,000. Then identical houses on either side of you sell for $300,000.

Thanks to the resulting comparables, your house is also appraised at $300,000, so you decide to take out a loan against the equity for $100,000 or cash out some equity by refinancing the higher amount at the current low fixed interest rate.

Applications for refinancing loans have skyrocketed to two-thirds of the total number of mortgage originations, according to the Mortgage Bankers Association of America.

In effect, you are using your house as a checkbook, assuming that, when you go to sell, you’ll be able to pay off the mortgage and the loan and still have $50,000 – minus expenses – left over.

But when you sell your house, the factors that drove up the prices of the houses on either side of you – low inventory and low fixed mortgage rates – are gone.

Now, there are five houses like yours for sale on your street. And even though your house was appraised in the good times at $300,000, your real estate agent breaks the news that you cannot expect more than $125,000 for it.

A worst-case scenario, obviously, but for you, the bubble has burst and what you have on your face is not just a little soap and water.

If it makes you feel better, real estate industry experts are saying there is no bubble.

“The time has come to put this issue to rest,” said David Seiders, chief economist of the National Association of Home Builders.

“The nation’s home builders have said it, the Realtors have said it, and Alan Greenspan has said, in no uncertain terms: There is no such thing as a current or impending house-price bubble,” Seiders said.

What Greenspan, chairman of the Federal Reserve, actually said in congressional testimony was: “We’ve looked at the bubble question, and we’ve concluded that it is most unlikely.”

Greenspan attributed recent “sizable gains” in home prices to “the effects on demand of low mortgage rates, immigration, and shortages of buildable land.”

Given the local nature of real estate, it’s possible for prices to deflate in one area, but a nationwide “pop” simply isn’t in the cards, Lereah said.

Thank you Inquirer. Good to know I didn’t buy during a stupid time.

Speaking of housing The Inquirer is reporting that the new property tax increases are favoring the city’s rich.

Hallwatch.org is the very best local resource to investigate the property taxes. Check out the online toolset.

One thought on “There Is No Housing Bubble

  1. “The nation’s home builders have said it, the Realtors have said it, and Alan Greenspan has said, in no uncertain terms: There is no such thing as a current or impending house-price bubble,” Seiders said.

    What a relief. Does that mean the stock analysts and CEOs and everyone else who said there was no Internet bubble a few years back were right after all? Y’know, the whole thing where the economy no longer has that whole up and down cycle, but is just stuck on “up” forever? That’s a relief!

    Sorry Karl, I hope things work out for you, but make sure you’re covered if prices take a big drop. Just because real estate agents say it’s a great time to buy doesn’t mean it’s true.

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