Is there a risk of another housing bubble burst?
Is the housing market bubble burst on the way? With median home prices rising for 78 months in a row, according to the latest National Association of Realtors data, some industry experts wonder if another one may be on the horizon.
These real estate insiders' concerns, of course, trace back to the housing crisis of 2008, when the cost of buying a home edged higher on regularly occurring intervals, similar to what's happening now, up each month on a year-over-year basis.
As bubbles in all their forms tend to do, it eventually burst, as the Case-Shiller Home Price Index recorded its largest drop in 2012. This sent the market - as well as the U.S. economy - into a major tailspin that ultimately resulted in the Great Recession, which was experienced on numerous fronts.
"It's interesting to watch the dynamics of the market," housing and home loan expert Rich Sharga explained to National Mortgage News. "What we see is prices rise, sales activity slows down, prices weaken and then sales pick back up. It's the way a housing market is supposed to behave in a normal environment."
Home prices up substantially, but not to same extent
The problem, Sharga noted, is that it's been a long while since the existing-home prices reversed course. According to analysis conducted by the Urban Institute's Edward Golding, home prices have risen by approximately 34 percent since 2012, NPR reported, far outpacing the rate of inflation. But that's quite tame in comparison to previous bubble periods, such as between 1997 and 2006, when home values moved at a pace that was 84 percent faster than inflationary pressures.
Golding and his team noted that home prices heated up so much, it got to the point where buyers could no longer afford them. Given that people are still buying houses today at a healthy clip, buyers are clearly able to afford the price increases, another key distinction of what's happening now versus then.
Foreclosures still few and far between
The low rate of foreclosures suggests as much. For instance, in August, some 30,187 properties in the U.S. overall began the distressed-property filing process, according to the most recent figures available from the ATTOM Data Solutions. While that's a slight increase from the same 30-day period last year - less than 1 percent - it's the first time in 36 straight monthly reports that the annual foreclosure rate climbed.
Translation? The unabated uptick in home prices is rooted in high-quality economic fundamentals, including a low unemployment rate, vibrant gross domestic product growth and steadily improving wages.
"That gives me confidence that things are moving well," mortgage servicing expert Gagan Sharma told National Mortgage News.
This doesn't necessarily mean that the housing market or the economy won't encounter troubled waters, real estate observers warn. However, because the people are on firmer ground financially, homeowners are in a better position to ride out the storm should one develop.