What is a Housing Bubble? Is One Forming?

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The recent talk of Greece and its financial challenges has some questioning whether the U.S. could also return to the crisis we experienced in 2008. Some are looking at the rise in real estate values and wondering whether we are in the middle of another housing price bubble.

What actually is a price bubble?

Here is the definition according to Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania:

“A price bubble is a rise in price based on the expectation that the price will rise. Sooner or later something happens to erode confidence in continued price increases, at which point the bubble bursts and prices drop. What makes it a price bubble is that the cause of the price increase is an expectation that the price will increase, which sooner or later must reverse itself.”

Does Professor Guttentag believe we are in another housing bubble? In a recent article, he explained:

“My view is that we are a long way from another house price bubble. Home buyers, lenders, investors and regulators now understand that a nationwide decline in house prices is possible — because we recently lived through one.”
What are home prices doing?

Though home values are continuing to appreciate, the acceleration of the increases has slowed to year-over-year numbers which reflect a healthy housing market. Here is a chart showing year-over-year appreciation since January of last year: Case Shiller Price Changes | Keeping Current Matters

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We can see that appreciation rates have dropped from double digit numbers to more normal rates of 5% or lower.

Bottom Line

We think Nick Timiraos of the Wall Street Journal put it best in a recent tweet:

“Predictions of a new national home price bubble look unfounded for now, according to data.”

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About The Panos Team

Since 2003, Mike and Tammi have made Las Vegas their home where they have become successful agents in a highly competitive market. Our enthusiasm, integrity, diligence, work ethic and negotiation skills have well served our Buyer and Seller clients in all residential arenas including single family homes, condos, townhomes and highrise. We specialize in short sales as well as Bank Owned (REO) properties and traditional home sales. Our goal is not to be the #1 agents in Las Vegas...our goal is to be YOUR #1 agents in Las Vegas! As Las Vegas residents, we appreciate what a great place this is to raise a family, spend quality time with friends and loved ones and just simply enjoy life. We consider it a privilege to be able to help others achieve their investment goals when it comes to living in Las Vegas. We value family time, enjoy camping and riding quads, we are active in our church. We also enjoy bowling, eating ice cream, participating in our annual family talent show and just simply relaxing.
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