U.S. home resales surged to a 5-1/2-year high in May as first-time buyers piled into the market,Lawrence Yun, of NAR says that 2015’s annual price could exceed the 2006 peak.
Then he made another bold claim:
“This is clearly not a bubble.” Yun pointed to the following:
1. Overall demand for housing is 25 percent lower than it was during the housing boom.
2. New home construction is about half of what it was during the housing boom.
3. Mortgage debt outstanding is 10 percent lower than during the housing boom.
Yun defines a “bubble” as home sales and prices rising at an unsustainable pace, not supported by economic fundamentals, such as steady job growth, and/or sales and prices driven by lax underwriting. Mortgage credit availability is now far tighter than it was during the housing boom, when anyone with a pulse could get essentially free money. Fundamentals, however, are another story.
“We are definitely not in a bubble in the sense of what we experienced in the mid-2000s,” said Peter Boockvar, managing director and chief marketing analyst at The Lindsey Group. “But I think it’s easy to argue that home price gains are running at an unsustainable pace. Interest rates are certainly in a bubble in that people could borrow over the past few years at rates never before seen. The industry itself, as measured by new homes, is still in a recession with sales so far below average levels.”
The year 2006 saw both sales and price bubbles. This is not the case today .Sales are climbing but are still week because they are coming off really low numbers. Today’s prices are being driven by very tight supply, increasing demand and still-low mortgage rates—not by a soaring economy. AS these things slowly diminish, sales and prices will level off.
