As the housing market continues to recover from the great meltdown, we hear concerns from many people that we are approaching another bubble. According to a recent article in Forbes, 58 percent of the respondents to a survey felt that there will be a housing bubble—and correction—in the next two years.
Considering that housing price growth has surpassed wage growth and inflation, it's easy to see why many people feel that way—and history is on their side. According to the article, for the past 50 years, the typical home price cycles are seven to 10 years.
The current cycle started in 2012 and our most recent cycle before the meltdown was 17 years long.
The most recent Core-Logic Case-Shiller Home Price Indices release stated that housing was not in a bubble situation, because unlike the previous bubble, price growth is not universal, there is growing demand for housing and the number of homes sold today is 20 percent below the pre-crash volume. Additionally, unlike our recent bubble, we do not have the easy mortgages for speculators, which was a significant factor in the past. In a bubble situation like our most recent one, speculation was a large factor as builders kept building, thinking prices could never fall and people were investing in homes based on the returns.
I personally have been concerned about how home affordability and how home price growth has far exceeded wage growth and the inflation rate, but I think all of us can see that there are limits to price growth. Because of our most recent meltdown, people have a different mindset about prices – that they can be too high and can come down instead of indefinitely going up.
Many economists see our housing market as expensive, competitive and unaffordable, but reject the bubble notion.