There is a frenzy in the housing market. Homes are sold quickly with multiple offers. It is the reminiscence of a few years back. It is only natural to ask if another housing bubble is in the making! A recent article in the Economist magazine argues perhaps not.
The prices in the 20-city index compiled by the Standard & Poor’s®, and now CoreLogic’s®, Case-Shiller® have risen by 11% this year to the end of March. The index rose more than 20% in Phoenix, Las Vegas and a few other cities. Those cities experienced the largest gains and deepest busts during the last housing bubble. See my post a year ago, http://www.metroreig.com/news/2712
A bubble is defined as when the prices appreciate to a point where it decouples from the intrinsic value of the asset. For that, the Economist is comparing the ratio of prices to the household income, and to the rents against their long term averages. They conclude in most cities the prices are near their long-term values but none looks “bubbly”.
In most cities, price-to-rent and price-to-income ratios are at or near their 25-year averages. The article continues to say other factors could derail the housing recovery but a bursting bubble is not one of them.
In Denver, however, “the prices have regained their peaks, and valuations are above their long-run average.” This is the only city the article considers “expensive”. Perhaps that has been the norm here. The charts reveal, since Q1 2000, the Denver prices have remained above those averages.
Check out the interactive charts at: