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No, NOT Another Housing Bubble
All the news of late has been talking about another housing bubble, including our report here last month. The double-digit home price increases and the return of bidding wars have led to a lot of "bubble" talk lately.
But today, we're going to tell you why we are NOT in another housing bubble, nor are we about to be. Read on!
First, prices, as measured by Case-Shiller, are still down 27 percent from their peak seven years ago. But Case-Shiller calculates nominal prices, not real ones. And the consumer price index (inflation) is up 15 percent since 2006. So real house prices are about 37 percent below 2006 levels and are just now returning to where they were 13 years ago.
It takes a larger percentage increase to offset a percentage decline. Take a $100,000 house at the peak. If it fell the real national average 42 percent during the bust, it would have been worth $58,000 at the bottom early last year. But to get back to $100,000, it would take a 72 percent increase from the bottom.
Even now, after the sharp bump off the bottom, prices would have to jump 60 percent to get back to their bubble-era peak.
You also have to remember that some land-constrained individual markets are prone to booms and busts and probably always will be.
One could argue that the bubble of the 2000's was so insane that we don't have to get back to those levels to have another bubble. And that's true, but there are plenty of other indicators that say we aren't in one.
For instance, is it better to rent or to buy? It's still better to buy, according to S&P Indices calculations. The essential question regarding any bubble is: Does the investment make sense? Can homebuyers actually afford their mortgages?
Homeowners are spending a historically low amount of their income on their mortgages—just 13 percent, according to Zillow. From 1985 to 1999, that number was 20 percent. In the bubble it was nearly twice what it is now. In 1979 it approached three times today's levels.
The economy can't get back on its feet until housing starts really moving again. Low interest rates make it possible for buyers to afford higher prices. As interest rates start to rise in the next year or so, that will counterbalance the surge in prices, as will an increase in inventory, as underwater homeowners are able to sell their houses without losing money.
To really have a housing bubble, you have to have lots and lots of transactions. And while sales are up (remember, that’s a good thing!) they’re still at 1999 levels, even though we have 10 percent more households since then. Transactions of new and existing homes would have to pop 55 percent to reach peak bubble levels—roughly 3 million more deals a year.
That's not happening anytime soon.
Bear markets don't last forever, and not every recovery is a bubble.
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Protect Yourself Against Moving Scams
Hiring a moving company can be complicated, and even an honest mover can disappoint a consumer unless they know their rights. And those rights can vary depending on whether you're moving between states or within one. Don't be duped by low-ball estimates and then the mover grossly inflates fees after loading your possessions onto their truck. Consumers need to protect themselves, and here's how:
Get Recommendations
Try not to rely on newspapers, phone-books, or online ads for the names of movers. Instead, get recommendations from friends, family, or reliable real estate agents. Plan to obtain estimates from at least three companies. Avoid movers that can't provide an address or licensing information. Ask if they have marked trucks, and use a mover that does. Never hire a company that relies solely on a phone or online estimate, or one that requires a large deposit.
Check for Complaints
Along with licensing information, the federal website and some state sites list complaints against movers. Also check the BBB (www.bbb.org), and search with the company's name to find reviews and complaints on online forums and complaint websites.
Verify Licensing
New Jersey officials conducted a sting operation last year that resulted in fines against 25 unlicensed moving companies with listings on Craigslist, Angie's List, and other websites. Several movers had outstanding warrants; two were wanted by U.S. Immigration and Customs Enforcement. Interstate movers are licensed by the Federal Motor Carrier Safety Administration, which offers information on how to screen them, at protectyourmove.gov. The site also has a list of state regulators who oversee in-state movers. (Click on "State/Local Resources" when you get to the site.)
Know Your Rights
The federal government and some states require movers to provide booklets explaining your rights. Although the federal "Your Rights and Responsibilities When You Move" doesn't apply to in-state movers, it's a must-read for all. Find the title under "Are You Moving?" at protectyourmove.gov. Also check the consumer information on the American Moving & Storage Association’s website ( www.moving.org ).
Making Complaints
If there's a problem after the move — you notice items are damaged or missing — contact the mover immediately. The mover should have given you a copy of its procedures for handling complaints and inquiries. If you think you've been defrauded or the mover violated the law, contact your state attorney general or consumer protection agency. If you think the mover is illegally holding your possessions and trying to rip you off, contact the police. If ultimately you need to sue in small-claims court, send your mover a demand letter with your complaint and what you're seeking.
Moving companies can leave you fighting for your possessions if you don't become pro-active in the process of finding a reputable mover.
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Home Sales Up Despite Slim Inventories
Pending home sales — the measure used by the National Association of Realtors to indicate completed sales about two months ahead — rose only slightly from March to April, a mere 0.3 percent. But those rising prices are helping keep homes off the market as many homeowners in negative equity and banks holding foreclosed properties opt to stay on the sidelines.
Based on contract signings for the sale of existing homes, the Realtors' Pending Home Sales Index is up 10.3 percent from a year ago to the highest level since April 2010, right before the expiration of the homebuyer tax credit.
Total existing home sales are expected to rise just over 7 percent to about 5 million this year, according to NAR. The national median existing-home price should increase close to 8 percent and exceed $190,000 in 2013.
"Because of inventory shortages, higher home sales will push up home values to the highest level in five years," said Lawrence Yun, NAR chief economist.
The Pending Home Sales Index in the Northeast jumped 11.5 percent to 92.3 in April and is 17.7 percent above a year ago.
In the Midwest, the index rose 3.2 percent to 107.1 in April and is 15.1 percent higher than April 2012.
Pending home sales in the South slipped 1.1 percent to an index of 119.2 in April, but are 12.3 percent above a year ago.
With significant inventory constraints, the index in the West fell 7.6 percent in April to 94.6 and is 2.6 percent below April 2012, blamed strictly on the low number of homes for sale to satisfy rising demand.
