Recovery or Bubble? Housing Analysts Weigh In

by 08 Feb 2013

Under current market conditions in the United States, one real estate agent’s recovery is a housing analyst’s bubble in the making. Bustling regional housing markets in Arizona, California and Florida are keeping real estate and mortgage professionals on their toes, but some housing analysts are seeing the glass as half empty. A recent CNBC article collected opinions from analysts who think the current housing climate may lead to a housing bubble 2.0, and a former White House budget official emphatically told Yahoo’s Lauren Lyster that the bubble is already here.

The Writing on the Wall

Recent median home pricing reports from CoreLogic and Clear Capital indicate substantial price gains over the last 12 months, but the major Florida regional housing markets were pretty neutral in December 2012. Clear Capital analysts interviewed by CNBC see this as a sign that the rapid pace of acquisition by investors of foreclosed and real estate owned (REO) properties may be coming to an end. A similar situation can be seen in some housing markets such as Phoenix, Las Vegas and Southern California, although home prices appreciated in those markets in December.

The situation in Florida is of higher concern since the Sunshine State now has the highest foreclosure rate in the country. Once more of these distressed properties come on the market, aggressive bidding by investors may lead to artificial price inflation, a clear sign of a housing bubble.

To David Stockman, who was in charge of the Office of Management and Budget during the administration of the late President Ronald Reagan, the writing on the wall is legible: Artificially low mortgage interest rates lead to speculation, which in turn leads to artificially high prices and inflation. Stockman believes that Wall Street giants and private equity funds are bringing vast amounts of fast money to the market, obliterating first-time home buyers who still can't afford to participate in the markets due to diminished incomes, unemployment and tight mortgage lending restrictions.

A Credible Threat

If the present housing market is really a bubble, the United States has company. Canada and Switzerland are going through housing pains at this time, and both countries have something in common with the U.S. in the form of super-low rates and hard-to-get mortgages.



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