A recent S&P/Case-Shiller Home Price Index was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another Vero Beach housing bubble forming?
Economists point to several reasons why this isn’t a concern, namely that while prices keep rising, the rate of growth has slowed. In the first three months of this year home prices gained 0.8%, according to the S&P Case-Shiller national index. That’s down from 2.8% in the first three months of 2013 and 1.2% during the same period of last year.
Over the long-term, housing has tended to rise about 1% annually above inflation. According to the Bureau of labor Statistics, $1 in pre-bubble 1997 is $1.46 in 2015 dollars. A 1% gain over the past 17 years adds 18.4%.
If we add inflation and a 1% annual gain, we find a historically justified target around 110 on the Case-Shiller index.
The chief economist for the National Association of Realtors has gone on record as saying that prices could surpass the peak set during the last housing boom…
Economists also aren’t concerned about a Vero Beach housing bubble because far fewer new homes are being built than a decade ago so there is little concern about oversupply. And most buyers are using cash or getting 30-year, fixed-rate mortgages that don’t carry the same risks as the sub-prime, adjustable-rate mortgages that many received during the boom.
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Some economists said that’s a sign of a normal housing market because in a bubble prices typically rise in tandem across the country, rather than responding to the strength of local economies. That doesn't seem to be happening now, which is strength for the argument that a Vero Beach housing bubble is not in the picture, at least not for now.
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