Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming!

Bubble-KCM

We recently reported that home prices are continuing to rise across most of the nation. This has created concern in some pundits that a housing bubble, like we saw ten years ago, is forming again. We want to explain why these concerns are unfounded.

The current increase in home values can be easily explained by the theory of supply and demand. Right now, the number of families looking to purchase a home is greater than the supply of homes on the market.

Here is a chart that explains how the months’ supply of housing inventory impacts home values:

KCM-ENG-1

According to the latest Existing Home Sales Report from the National Association of Realtors, there is currently a four-month supply of inventory. That puts us in the blue section of the above graphic. Home prices should be appreciating.

The difference in 2006…

A decade ago, the demand for housing was artificially boosted by lending standards that were far too lenient. Today, the strength of the demand for housing is legitimate, as lending standards are nowhere near what they were a decade ago.

For proof of this, let’s look at a graph of the Mortgage Bankers’ Association’s Mortgage Credit Availability Index:

KCM-ENG-2

The higher the number, the easier it was to get a mortgage. We can see that from June 2005 to June 2007, mortgage standards were much more lenient than they have been over the last nine years.

Bottom Line

Today’s price increases, unlike those a decade ago, are the result of qualified buyer demand exceeding the current inventory of homes available for sale. Once the supply increases, prices will level out.

How can I help you achieve your real estate goals?

 

 

About Carol Juntunen:
I'm a Realtor® with Baird & Warner in the Chicago NW suburbs.
My intention is to provide insights and information to empower you to make informed real estate choices and decisions, and guide you through the home buying, selling or renting process.

Contact me:
Carol Juntunen
Baird & Warner
Realtor® & Broker Associate
CNE, CSC, e-PRO
carol.juntunen@bairdwarner.com
www.caroljuntunen.com
224-523-2217


One thought on “Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming!”

Leave a Reply

Your email address will not be published. Required fields are marked *