Should we worry about a new housing bubble?



 The last 5 years in the Real Estate market have been a real roller coaster ride. We have all seen significant fluctuations of the valuation of our homes over the last 5 years. Many have seen their home values decrease as much as 30-40% and most have seen a complete rebound in the current market. Those who bought a home since 2008 have most likely seen a significant increase in the value of that property.

 It is currently still a seller’s market with limited property available to purchase. Many ask how could we go from a significant over supply in the market to an under supply in such a short period of time?

 We have approximately 500,000 homes in the United States destroyed each year. This could be from natural disasters, fire, and demolition. We need to build approximately 800,000 net new homes to keep up with the growing population. Net new homes is the difference between new homes minus destroyed homes. Here in lies the problem.

 Between the years mid 2008 through mid 2013, only approximately 600,000 total homes per year were built. Subtract the estimated 500,000 homes destroyed, and there was only a net gain of 100,000 new homes each year.

 You do not need a math or economics degree to see the significant shortage that was created over the last 5 years. Some economists have indicated the rapid rise in housing prices may create a housing bubble again. In order to have another housing bubble, we would have to go into another over supplied market. My opinion is we are still digging out from the market being under supplied and this rapid increase in pricing is mostly a correction to the over supplied market from 2008-2013.

 Are home values going higher? The current trend is yes, home values are rising. If you look at historical data, houses appreciate on average between 4.5-6% per year over the last 30 years. I give a range because there are many ways to manipulate the data and a range is usually the best way to look at the growth.

 This 4.5-6% appreciation exceeds the average increase in income or inflation. As we experienced in the last few years, we know it can be a bumpy ride. Remember that buying and owning a home is still one the of the best investments you can make even if the value does not go straight up each year.



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