Is a real estate bust coming?
I’m sure we all “fondly” 🙂 remember the epic real estate crash of 2007, I like to joke that I’m still walking a bit weary from that experience. Since the crash, house prices across the country have been on a tear with rapid appreciation in nearly every market. Is the rapid home price appreciation too fast too soon?
The million dollar question is: Do we have another bubble forming? For example in certain markets around Denver, appreciation has been 15-20%/year and recently led the appreciation of major cities (see Denver Post Article). Is this appreciation sustainable?
I’ve pulled together a considerable amount of information from various economists: Fannie Mae, wall street, Bloomberg, Huffington Post, etc… to help answer the question above and also answer the following:
- Are most major markets fairly valued?
- Is California and indicator of the next downturn?
- Are we on the up or down of the cycle? How much more either way?
- Is the country as a whole actually undervalued?
Let’s first tackle the most important question: Is a bust imminent? Unfortunately this is not a simple answer. I believe certain markets are becoming overheated and are near the top of the cycle. Take Denver for example. Denver has seen record house appreciation leading the way in the last survey. I don’t think this is sustainable for Denver or any other market to continue appreciation at the torrential pace. On the flip side, for the vast majority of markets I don’t think there is a large bubble getting ready to burst (other than some of the coastal markets like NY, CA, etc…). In most markets I see a leveling off of the annual appreciation
Here are some articles with various opinions:
- Is there a coming real estate Bubble: Bloomberg news:
- Most recent indicator say no bubble on the horizon: Bloomberg news
- Fannie Mae (the largest buyer of mortgages) sees no housing bubble
Are house prices undervalued? Is Detroit the place to be in real estate
The Huffington post put out an interesting article: beware of the bubble which took the stand that house prices are actually undervalued. If you dig deeper into the article, the undervalued markets where hit very hard by the recession (think Detroit) and according to this economist are undervalued. I find this hard to believe that Detroit is the next bastion of market appreciation. I think there analysis is a bit flawed since the market fundamentals in Detroit and Cleveland are less than steller.
Is California and indicator of the next downturn?
The guys at Zero Hedge published an interesting article: America’s biggest housing bubble, San Francisco will foretell the next bubble. This is a very interesting piece, they basically tracked San Francisco’s house appreciation and used this information to predict the next downturn. According to this chart, San Francisco has peaked and should decline. Does this foretell an impending bubble for the rest of the country?
Are we on the up or down of the cycle? How much more either way?
Where we are at in the cycle is very interesting. Personally I think we are at or pretty close to the top of the market. Most markets should have an elongated curve meaning there will not be a sharp movement in prices one way or another. In summary, it will be interesting to see how this next cycle unfolds, at this point I would not be running for the doors predicting a burst in the next 3 years.
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