Another ‘bubble’ in housing is unlikely | Katonah Real Estate

Home sales and prices are increasing so dramatically, many people are wondering if another “bubble” situation might be just around the corner.

 

Most housing industry leaders and economists doubt a housing bubble will resurface in the foreseeable future. Despite double-digit price gains in many markets, the housing outlook is bubble free for now as the sector recovers for the next several years, experts say.

 

Leading off a panel of economists addressing a gathering of journalists, Lawrence Yun, chief economist for the National Association of Realtors, said he expected a multiyear recovery as home price growth lifts more owners out of underwater situations and helps the economy.

 

“Housing wealth is easily offsetting the negative effect of sequestration,” Yun told the National Association of Real Estate Editors. But the normally housing bullish economist tempered his optimism because double-digit increases in home prices are outpacing income growth, it was noted in a Real Trends report.

 

“Any time that happens over a sustained period it is an unhealthy state for the country,” Yun added.

 

The Wall Street Journal posted the following statement in explaining why the market might look as though another bubble might be emerging:

 

“The fact that homes are selling quickly is in large part due to supply and demand. The past five years have seen subdued construction activity and many homes either tied up in foreclosure or ‘underwater’ due to negative home equity, all adding up to constrained supply.”

 

Q: Are mortgage interest rates still rising?

 

A: Yes, they are rising dramatically. The largest weekly increase in more than 26 years was announced by Freddie Mac on June 27. Rates on 30-year, fixed-rate home loans spiked 0.53 percentage points to an average of 4.46 percent during the week.

 

The 30-year loan, which stood at 3.35 percent as recently as early May, is at its highest level since July 2011, it was reported by CNN Money. Rates for 15-year loans, popular with homeowners refinancing their mortgages, jumped 0.46 percentage points to 3.5 percent.

 

An extra percentage point will cost homebuyers with 30-year, fixed-rate mortgages $56 more a month for every $100,000 they borrow, it was noted.

 

Q: Will rising mortgage rates make homes less affordable?

 

A: The steady increase in mortgage rates in recent weeks, coupled with rising home prices, may dampen demand, but the upward movement in rates is not enough to make housing unaffordable to median income earners, according to Freddie Mac’s economic and housing outlook for June.

 

In fact, Freddie’s analysis showed mortgage rates would have to climb to nearly 7 percent before a median priced home is no longer affordable to median income earners in most parts of the country.

 

Another ‘bubble’ in housing is unlikely.