Is Housing A Bubble In 2013? | North Salem Real Estate

I’m frequently asked if home prices are a bubble now. There’s certainly reason to wonder. In fact, I get that question a lot. To lay the groundwork, I recently explained what a speculative bubble is. The key is that prices are being bid up substantially by people expecting a short-run gain. Price can rise because of fundamentals, such as greater demand or limited supply. Such price increases are not a bubble. However, fundamental changes can trigger growth, which sometimes leads people to believe the growth will continue, in turn leading to speculative buying.

Look at these home price increases, each calculated over the past 12 months:

Case-Shiller 20-city index:                                          +12.1% FHFA’s House Price Index:                                           +7.3 percent CoreLogic:                                                                         +11.9% Trulia Asking Prices:                                                    +11% New single family home median:                             +7.4% National Association of Realtors existing homes: +12.2%

So do all of these statistics point to a bubble?

Is there good reason for home prices to rise? Sure there is. Look at the underlying demand growth. Population is growing, though slower than in the past. The number of people living in a household has dropped from its peak in 2008. That means we need slightly more houses for a given number of people. Mobile home sales have dropped so sharply that they hardly play a role in national statistics anymore. We need about 1.2 million new housing units per year, on average. Maybe it’s only 1.1 million, but it’s certainly something in that neighborhood. Housing completions last year totaled 650,000 units, far short of our average need.

Bedford New York Real Estate | Bedford NY Homes by Robert Paul Realtor » Blog Archive » Is Housing A Bubble In 2013? | North Salem Real Estate