Is the Housing Market Bubbling Again?

by 11 Feb 2013

It seems that no finance news comes without its own caveat. While the 2013 housing market outlook has become remarkably positive, especially in light of sharply climbing real estate values, some reports suggest market trends are mimicking those that preceded the housing bubble. Granting that these pronouncements may well be premature, what are the potential warning signs that growth may be accelerating too rapidly?

Foremost among them seem to be a spike in rates of purchase among previously neglected regional housing markets. As a recent article from notes, regions where the housing crash was most pronounced have lately become regions with the most rapidly climbing home values. Citing the metros of Phoenix and Las Vegas, as well as statewide metrics from California, the CNBC report notes that each of these regions saw a mean rise in December 2012 home values year-over-year that breached ten percent. This has naturally provoked questions of the regional sustainability of these fast-onset price recoveries.

One of the greatest motivators for the bounce in regional home prices has been rapid purchase of previously neglected property. The nationwide ‘shadow inventory’ has rapidly decreased, which has worked to dramatically alter the housing market’s supply and demand equation. With newfound sales competition has come a newfound rise in real estate values, which seems most pronounced in regions that had otherwise been home closing dead zones.

However, as the CNBC report noted, much of this inventory purchase came not from individual homeowners, but from major finance players and real estate brokers. The real estate purchase we’re seeing in regions like northern California and Phoenix may be more inclined towards financial puppeteering and less connected to organic homebuyer interest. This means that while local home values may be rising, it has less to do with active consumer demand and more with the real estate speculation of singular entities. Considering that Big Money is doing more to motivate recovery in these hot spots than Joe Consumer, there are some potential consequences for the market as a whole.

If this trend continues, calculating investors will buy up regional inventory with the intent of escalating home prices. This is clearly positive for those with impersonal real estate investments, but it may spell bad news for those merely interested in purchasing a home or maintaining a mortgage. With regional prices escalating, otherwise interested homebuyers may have to reconsider taking out a loan, which leaves that market orchestration largely in the hands of hedge funds or major banks.

Granting that assertions of a second bubble are premature, it would nevertheless be prudent for market observers to take note of purchase trends throughout the rest of the year. If investing bodies purchase property at a rate that overwhelms closings made by families or private owners, the recovery could prove unstable. Lopsided purchasing trends may produce more complex and enduring problems even if market data points towards an increase in real estate prices. Health in the housing market seems intimately tied to transactional participation of homeowners and interested buyers, and if big money’s influence becomes too heavy handed, we’re slated to see potential challenges for everyday property holders.


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