Is Another Housing Bubble Emerging? by Jim Woodard on Creators.com

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Is Another Housing Bubble Emerging?

It's very unlikely that a significant housing bubble is forming, most experts say. For example, reports from Capital Economics and Redfin asserted no such bubble is forming — at least not on a national level.

Capital Economics recently addressed concerns that home price increases, which are rising twice as fast as gains in income and residential rent, are not sustainable in the long run.

One argument the firm made is housing actually has more to gain than lose from rapid price gains since it would help more homeowners rise out of negative equity and help those with low equity.

One of the pleasant surprises of 2012 was the rapidity with which the housing market recovered. That trend has remained in place thus far this year, it was reported by Real Trends.

According to the S and P/Case-Shiller Home Price Index, U.S. home prices are now up more than 8 percent year over year, the fastest pace of growth since before the housing bubble burst.

In discussing the possibility of a new housing bubble, analysts point to several factors in the market, such as the following:

While home prices have jumped from last year, they are still way below their peak. In 2005, the median price of a new home was nearly $230,000. Today it's less than $175,000.

Also, houses are not only cheaper on an absolute basis; they are also cheaper relative to what people earn.

While home building has rebounded, it's still well below peak levels. Over the past 50 years, U.S. housing starts have averaged roughly 1.46 million per month.

In early 2006 the pace was more than 2.2 million. Today, housing starts are running at a rate of less than 1 million.

Q: Are mortgage interest rates rising?

A: On May 2, Freddie Mac released the results of its Primary Mortgage Market Survey, showing average fixed mortgage rates moving lower for the fifth consecutive week amid the weaker than expected first quarter economic growth advance estimate.

The 30-year fixed-rate mortgage at 3.35 percent is hovering just above its all-time record low of 3.31 percent set the week of Nov.

21, 2012. The 15-year fixed-rate mortgage set a new all-time record low this week at 2.56 percent, eclipsing the record set last week.

Q: Are most people optimistic or pessimistic about today's housing market?

A: Optimism surrounding the housing market has the majority of Americans feeling more positive, according to survey results from Gallup.

Gallup found 51 percent of those surveyed said they expect home prices to rise in their area over the next year — the first time since 2007 that the number has been above 50 percent. Last year, only 33 percent of respondents gave the same answer.

In this year's survey, 34 percent of Americans said prices will stay the same — down from 44 percent last year — while 14 percent said prices will fall, down from 23 percent.

Q: How many currently outstanding mortgages are there?

A: The total number of outstanding mortgages in the nation fell below the 5 million mark for the first time since 2008, according to data from Lender Processing Services as reported by DS News.

"In March, non-current loans totaled 4,997,000, down from 5,104,000 in February. The figure for non-current loans includes 3,308,000 million properties past due 30 days or more but not in foreclosure, as well as 1,689,000 properties sitting in foreclosure inventory," the report stated.

Q: How is the growing number of all cash buyers affecting the market?

A: Here's an interesting quote on that subject published by Real Trends:

"It is astounding how people brush off an overall weak economy and suddenly justify all cash investors as somehow a normal part of the real estate market. Once again, we are in uncharted territory. The amount of all cash buyers is off the charts.

"It is amazing how quickly people drink from the fountain of cultural amnesia and suddenly forget the environment that led us into this mess. This is a fact; however, never have we had so much of the real estate market dominated by all cash purchases. But what is a normal amount?"

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.