The real estate industry is on an uptrend. However, several members of society are reading the signs differently. To them, it is more reminiscent of the 2006 housing bubble that saw fluctuations in housing prices that ultimately led to its downfall towards 2008 where home prices were at their lowest in US history.
In 2015, the signs are there. Or at least that is what pundits choose to believe. Increased demand for more quality and affordable homes. Yet, the supply is unable to catch up with the demand. This is driving the prices of real estate property considerable higher. For example, home prices have increased to almost 7 percent this year compared to 2014. This means that a 200 thousand dollar home in 2014 will now cost you more or less 214 thousand dollars. The 14,000 USD is already enough to purchase a second hand vehicle or even make dramatic improvements in your home.
A Capital Economics study revealed that, on the overall, the trend is going up. Referring to a 5 percent rise in February from the same period of the previous year, the 2 percent jump towards August 2015 only shows an increasing trend – the very same trend that was seen in the 2004-2006 housing bubble. And this is what gets people worried.
However, Core Logic maintains that overvaluing of real estate property does not necessarily signal the beginning of an impending crash or another scenario inside a housing bubble. It can also mean that the overvaluing now seen in almost every major metropolitan area in the United States can be attributed to strong economic fundamentals.
The recent move of the US government to hike interest rates seems to suggest that the rising home prices can be attributed to strong economic fundamentals.
For the first time since 2006, the US Federal Reserve has hiked up interest rates to one-half percent, spread in two phases: 0 percent to ¼ percent and ¼ percent to ½ percent. The hike was made amidst growing productivity in the labor market, the decreasing inflation rate, and the more than favorable overall economic picture.
The timing of the Federal Reserve hike of interest rates has been met with some criticism, unfortunately. Some pundits argue that if real growth will not be realized in 2016 amidst rising wages and prices that are inherent in full employment, then it will only result to some form of stagflation. Usually, for full stagflation to occur, the rate of economic growth is at a snail’s pace while the rates of inflation and unemployment remain very high.
However, economists point out that all over the United States, cities are showing dramatic improvements in economic productivity. While real estate projects continue to be developed and built, the growing number of population in the nation’s key cities has been seen to significantly overtax the real estate supply.
More and more people are flocking to the metropolitan areas in search of work which is aplenty. This leads to population growth for that particular area. When a city has simply more residents living in it with fewer residential units available for occupancy, the balance between supply and demand gets tipped. This is how industry experts explain the recent overvaluing of real estate properties.
So, is it is not a housing bubble then?
If you are really going to look at the overall economic picture of the US and compare that with the 2007-2009 periods, one can say that the US has gone through some dramatic economic improvements over the years. A housing bubble will not be likely if all US states are experiencing vibrant and very strong economies.