Florida Real Estate News – Freddie Housing bubble fears are inflated
If it’s not going to pop, it’s not a bubble. While the real estate market will probably see moderating home prices over time, a “pop” is highly unlikely.
Freddie: Housing bubble fears are inflated
WASHINGTON – Mortgage financing giant Freddie Mac devotes its entire November Insight report to exploring the warning signs from last decade’s housing price bubble – and it weighs its conclusions against the current housing market. However, economists quickly say that today’s market is not overheating.
“The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years,” says Sean Becketti, Freddie Mac’s chief economist.
“However, the housing sector is significantly out of balance,” Becketti adds. “The incomplete recovery in residential construction following the crisis of the last decade has created several years of pent-up demand for household formation. What we can’t predict is how this imbalance will eventually be resolved. Will there be a gradual restoration of a normal balance between supply and demand? Alternatively, will the rate of home building remain stubbornly low, exacerbating the income and wealth inequality that followed the Great Recession? Another bubble appears to be a less probable scenario, but not an impossible one.”
Economists pointed to several reasons bubble fears are overinflated, including the lack of housing inventory and dismal residential construction. Residential construction has been about 500,000 homes short of demand every year, economists note.
“The shortage of houses for sale is strong evidence against a house price bubble,” economists wrote in the report. “And the difficulty of increasing residential construction quickly suggests that any price adjustment will be gradual.”
A decade ago, the wide availability of credit helped fuel housing demand; some also blamed it on starting the housing bubble. Credit standards today remain tighter than historic norms.
Home flipping – buying a house and fixing it up for a quick resale – was blamed for the run-up in prices during the housing bubble, but home flipping continues to be low today, economists note.
“Finally, homeowners are not increasing their mortgage leverage,” economists stated in the report. “The sharp growth in house prices is generating an almost dollar-for-dollar growth in homeowners’ equity with only negligible changes in mortgage debt outstanding.”
Source: “The ‘B’ Word: Can We Spot the Next House Price Bubble?” Freddie Mac November 2017 Insight (Nov. 9, 2017)