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Massachusetts Home Buyer Guide

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Are We Headed Towards a Housing Bubble?

Aug 2, 2015 11:26:00 AM

We all have heard the talk about the housing recovery and rapidly rising home prices, especially in the Greater Boston Area, and many real estate industry analysts question whether we are headed towards another housing bubble. 

Are we entering a real estate housing bubble?The chief economist for the National Association of REALTORS, Lawrence Yun, recently addressed in a column in the July/August 2015 REALTOR magazine the question of whether we are entering a new residential real estate market bubble.  

There's no doubt housing is strong in the United States. Nationally home sales through May were up 6.3 percent and 7.9 percent in May compared to May 2014. The above statistics don't even include sales of new construction. The strong market raises questions of affordability and a housing bubble that has the potential to burst. 

According to Yun, "Underlying conditions today are fundamentally different from the bubble of a decade ago. Back then, credit was easy to obtain and home sales were running at more than 8.5 million a year (existing and new homes combined). New-home construction volume topped 2 million annually.

"By comparison, credit today is extremely tight, which has led to an unusually high level of all-cash sales. Home sales are barely over 5 million and new-home construction is barely scratching 1 million units. Meanwhile, for the past eight years, total mortgage balances have fallen. The reasons show what's changed from 10 years ago: Home owners are paying their mortgages on time and few are seeking cash-out refinances."

Of course not every real estate market is the same. The Greater Boston Area real estate market has seen sales gains and prices increases for more than two years now. Some cities, such as Cambridge, Brookline, Arlington and other communities close to Boston, with ample public transportation, have had significant price increases over the last couple of years. Tight inventory is in large part the reason for the recent price increases. 

Despite low interest rates, an improving economy and tight inventory, the median price of a single-family home has only increased 1.6 perent in Massachusetts through the first half of 2015, according to the Massachusetts Association of REALTORS. Single-family home sales through June increased 1.8 percent compared to the same six-month period last year. Statewide in 2014 the median price of a single-family house increased 2.5, according to The Warren Group, publisher of Banker & Tradesman.

Home price increases statewide are actually quite modest, so will there be a bursting bubble just in Boston and some surrounding communities? Maybe home buyers will continue to purchase homes, but refuse to keep paying higher prices in communties that have already seen significant increases? 

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Topics: Real Estate Market, Massachusetts Home Prices, Massachusetts Association of Realtors, The Warren Group

   

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