No Bubble In Sight According To WSJ

No Bubble In Sight According To WSJ

Latest news from the WSJ shows that The S&P/Case-Shiller Home Price Index released on Tuesday was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another bubble forming?

According to Tuesday’s data housing prices have been climbing for 35 consecutivemonths, but economists pointed to several reasons why that isn’t a concern, namely thatwhile prices keep rising the rate of growth has slowed. In the first three months of thisyear home prices gained 0.8%, according to the S&P Case-Shiller national index. That’sdown from 2.8% in the first three months of 2013 and 1.2% during the same period oflast year.

“There is no bubble to be anxious about,” said David Blitzer, managing director andchairman of the Index Committee for S&P Dow Jones Indices. Price growth in most markets is “a lot softer” than it was a year ago, he noted.

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Economists also aren’t concerned about a price bubble because far fewer new homes are being built  than a decade ago so there is little concern about oversupply. And mostbuyers are using cash or getting 30-year, fixed-rate mortgages that don’t carry the samerisks as the subprime, adjustable-rate mortgages that many received during the boom.

To be sure, some markets, such as San Francisco and Denver, have seen staggeringgains. Denver has surpassed its peak home prices in 2006 by nearly 17%.

But some economists said that’s a sign of a normal housing market because in a bubble prices typically rise in tandem across the country, rather than responding to the strength of local economies.

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Lawrence Yun, chief economist for the National Association of Realtors, has been among the loudest sounding the alarm that prices are too high. But he said that he isn’t worried about a bubble, just that the lack of affordability may cause demand to evaporate.

“In a sense it is demoralizing for people who want to save up for a down payment,” he said.

Another concern is a possible jump in interest rates. John Burns, chief executive of John Burns Real Estate Consulting Inc., said that would put homes out-of-reach for many at current price levels in many major cities.

Today mortgage rates are roughly about 3.7%. That makes homes in all top 30 metro areas either undervalued or fairly valued at current prices, according to Mr. Burns. But if rates rose to 6%, homes in more than half of those markets, including Los Angeles, San Francisco, Miami and Denver, would be overvalued.

“We are in a pretty precarious environment,” Mr. Burns said.

- Nick Timiraos contributed to this post. 

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Phone: 571-235-8709
Dated: June 1st 2015
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About Jayson: Jayson Wingfield’s background is in law. Leaving his position at a prestigious Washington, D.C. la...

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