Wednesday, April 23, 2014

Another Housing Bubble?

There are many great Orange County area homes for sale. Click here to perform a full home search, or if you're thinking of selling your home, click here for a FREE Home Price Evaluation so you know what buyers will pay for your home in today's market. You may also call me at (626) 780-2705 for a FREE home buying or selling consultation to answer any of your real estate questions.
Are We Facing Another Housing Bubble?
Today we're going to be talking about housing bubbles. In a real estate bubble, home prices inflate because of overly-optimistic expectations that prices will keep rising. When people can't afford to keep up with the prices, the bubble bursts and demand for houses decreases. While supply goes up, the prices will then drastically drop. 

Today there are some markets around the nation that are seeing prices go up so quickly that consumers are worried that we are facing another housing bubble. My clients in Orange County are always asking me about where we stand in the market, and I have some data to shed some light on this.

From 2000-2006 home prices were skyrocketing because of over-optimism on real estate, careless lending standards, and really low mortgage rates. At the time that the bubble occurred, we over-valued our real estate by 39%. Built on this shaky foundation, when prices cooled and millions of people defaulted on their home mortgages, the bubble didn't just burst - it exploded. This caused the biggest real estate and credit crisis in modern history. 

Fast forward to today, and we're still in recovery mode. With tighter lending standards it is harder to buy a home now than it was back then. But in certain markets we've seen prices rise rapidly again, leading some to wonder if history will be repeating itself again. In our own Orange County market, prices have risen by 17%. 

The increase in California is generally due to the investors taking up all of the tight supply and some of the tech millionaires willing to pay exorbitant prices for property. The other over-valued cities in the nation are Honolulu, Austin, and Miami. These areas are all dealing with high demand and tight supply. 

Should this be a cause for concern about a possible bubble? Not yet. On a national level, our home prices are still 5% under their true value. Of the 100 or so markets that are monitored by real estate websites, only 19 are overvalued right now. In 2006 when the bubble burst, all 100 of them we overvalued. So if prices continue to increase at this rate, then we might be concerned about a bubble, but it's just not happening.

Price gains are starting to slow down, and consumer protection is stronger than it has ever been. We also have strict lending standards that have been put into place to ensure people will not be over-borrowing like they were last time. 

So, we're nowhere near the bubble levels that we saw a few years ago, but it's a good idea to keep a pulse on what your local market is doing and where prices are going. Bubbles do pop up from time to time, so pay attention to what your real estate market is doing.

If you have not been keeping an eye on the market here in LA County or Orange County, then please give me a call and I would be glad to discuss these things with you. I want to put you in the best possible position for you to succeed.