Report after report continues to show home prices climbing at double digit rates so far this year – 10% a month ago, 12 % this month and projected at 13% next month. IS this cause for concern that another value bubble is forming in the housing market? Not really. This run-up in prices is driven by a single factor – the huge shortfall in inventory, when compared to the demand. It is also being tempered by conservative appraisals that are lagging a bit behind the market prices. Also, even though lenders are back to offering products like the old 10-10-80 mortgages (10% down, a 10% equity loan and an 80% mortgage) they are certainly not offering no-doc loans or lending to people with marginal credit scores.
So we aren’t really seeing another bubble, which was the result of the combination of bad lending practices and an over exuberant market; rather we are seeing a classic example of the supply-demand curve in action. Once the market reaches a point of recovery in values that will allow more people to put their homes on the market, we’ll likely also see a re-balancing of the market back to one where neither the sellers nor the buyers have the advantage.
Like any system that is springing back and forth between too much and too little, this market will eventually find that equilibrium point. In the meantime, hold on and enjoy the ride!