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Is the Housing Market Bubble Back?

I realize this is a loaded question to ask, considering people from certain parts of the country are still trying to bounce back from the early 2000’s. Things just started looking up, but could there really be another housing bubble coming? According to an article on Zillow, it doesn’t appear that the US as a whole is in any major trouble, at least not in the next five years or so. However, experts say that some markets, including New York and San Francisco, are already in a bubble. Additionally, some experts predict that Boston, LA, and/or Miami may enter a bubble within the next three years. So, how are these predictions made and what exactly does it all mean?

It really all starts with how you define “housing bubble.”  If you do some research online (which I have done plentyHousing Market Bubble of), you’ll notice that there are several different definitions. Nothing is set in stone which is why predictions and opinions vary so much. The experts that put San Fran and New York in a bubble define a housing bubble as “a market in which home prices have reached unsustainable levels given the economics of their local markets.”

The Zillow article explains that international buyers and investment trusts are the cause between the price surge in these areas and the question to ask is whether or not those properties will be held onto. In other words, will the cost exceed any potential profit?

On the other end of the spectrum, Andrew Schaffler, director of listed real estate securities for Madison International Realty, argues against the housing bubble theory in saying that “lending has become mostly prudent, and the people buying homes can afford them.”

While opinions between the 66 experts interviewed for the Zillow article varied, the only one who claimed that all 20 housing markets in question (including Atlanta, Chicago, and St. Louis) are currently in a housing bubble was Mark Hanson, mortgage banker and real estate analyst. He claims, “Bubble 2.0 is being driven by the exact same thing that drove Housing Bubble 1.0 … unorthodox, unfundamental demand using unorthodox capital.”

What do you think? Are US housing markets heading back into a bubble?

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MIKE CANNING
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RICK CALANNI
VP of Business Development Northeast Region

 

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