Are We In A Housing Bubble?
The four most dangerous words in real estate: “This time it’s different” 😊
I stole that from a recent Planet Money Indicator Podcast about a potential housing bubble (it’s only 8 minutes long, so I highly recommend it).
I blogged about a potential bubble in late 2015 here, and highlighted three potential “Bubble Indicators” from a so-called expert:
1. Hubris – a lot of cocky guys throwing money around;
2. New vanity skyscrapers – like Salesforce Tower; and
3. Inflated prices for fancy used cars.
We saw the above factors, but no real bubble.
TWO CRITERIA FOR A BUBBLE
Planet Money, however, interviewed a gentleman from the Urban Institute and he focused on two primary criteria: (1) Housing appreciation relative to inflation; and (2) Housing affordability.
Appreciation: From 1997 to 2006, housing appreciated at a rate 84% faster than inflation nationwide. Since 2012, housing has only appreciated 34% faster than inflation. So, we seem to be safe based on this criterion.
Affordability: Nationally, most local residents can afford a home in their market. This is key b/c a healthy market has mostly owner-occupants. Prior to 2005, flippers and foreign investors dominated most markets.
There are some cities, however, where excess appreciation and affordability are major concerns, particularly with respect to affordability.
These cities include San Francisco, Oakland, San Jose, Seattle, Portland, Miami and even Riverside, CA.
In most of those cities, fewer than 25% of local residents can afford to buy home.
Conclusion: Nationally, there is no sign of a bubble yet. But in some metro areas, there is reason for concern.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646