Analysts: Higher Home Prices Do Not Signal Housing Bubble 2.0

After the devastating effects of the American housing bubble of the early 21st century, real estate professionals and investors have become very vigilant about a resurgence of greed, graft and unchecked speculation in the housing markets.

After the devastating effects of the American housing bubble of the early 21st century, real estate professionals and investors have become very vigilant about a resurgence of greed, graft and unchecked speculation in the housing markets. Although these fears are hardly unfounded, two analysts recently cited by CNBC’s Diana Olick explained why the ongoing price gains in certain regional housing markets do not presage a bubble 2.0 scenario.

The analysts are David Blitzer of Standard and Poor’s and Eric Belsky of the Harvard Joint Center for Housing Studies. Both analysts reacted to the latest S&P/Case-Shiller Home Price Index, which marked the best year-over-year price increase for median homes in the top 20 regional housing markets since 2006. The Case-Shiller report for May 2013 showed a respectable 8.6 percent, which is still a far cry from the heavy speculation experienced in 2004 and 2005. Back then, the S&P/Case-Shiller posted annual gains as high as 16 percent year-over-year.

David Blitzer does not see another housing bubble emerging from these strong gains in the major metropolitan housing markets, although he admits that hindsight is always 20/20 when it comes to discussing boom and bust cycles in real estate. Eric Belsky takes on a more scholarly explanation, adding that median prices at a national level are commensurate with current levels of household income and the artificial mortgage interest rates.

Metropolitan housing markets that enjoy low unemployment rates and heavy participation by real estate investors are the markets where sellers are seeing multiple bids placed on their properties. Dallas, for example, is attracting many new residents due to its status as a city with great employment prospects. In the case of Phoenix and South Florida, two regional housing markets that were deeply affected by the foreclosure epidemic, real estate investors are buying homes for the purpose of holding on to them as long-term rental income generators.

Although real estate flippers are still operating in today’s housing market, they are being outnumbered by real estate investors looking for properties they can put up for rent. Flippers and other speculators tend to inflate housing markets; would-be landlords and real estate investors hold on to their properties far longer, and thus they actually add value to the housing market.