Posted: 29 May 2013 04:00 AM PDT
The housing market is recovering so nicely that it has caused some to wonder whether a new housing bubble is forming. Today, we want to explain that the fear of a new pricing bubble in real estate is unwarranted.
Trulia revealed some great data on this point in a recent blog post. They explained that, even with the recent price increases, national home prices are still 7 percent undervalued. Trulia explained:
Prices are below their fundamental value in the vast majority of the country (91 of the 100 largest metros). Even in the parts of the country that are now overvalued they come nowhere near the percentages we saw in 2006-2007. For example, let’s look at the two markets that are most overvalued today. In Orange County, California prices are currently overvalued by 9%. In 2006, prices in the region were overvalued by 71%! The second most overvalued market today is Austin, Texas at 5%. Texas real estate prices did not skyrocket as they did in many other parts of the country during the last boom. Austin prices were shown as being 12% overvalued at the time.
Again, prices are still undervalued in 91% of markets and, even in the markets that are overvalued, they are nowhere near the numbers of the 2006-2007 bubble.
Jed Kolko, Trulia’s Chief Economist, explained:
Dr. David Stiff, chief economist for CoreLogic Case-Shiller agreed in a recently released report on prices:
Three reasons there will NOT be another bubble
Prices are determined by the ratio between supply and demand. Here are three reasons a bubble will be avoided.
For these reasons, we believe the fear of a new housing bubble are currently unfounded.