Is Rebound in Housing Creating Another Bubble?
There’s no doubt that the housing market has recovered from the collapse that squashed sales and pummeled prices. The median price for sales of existing homes is now 12% higher than a year ago, inventories of those homes are at a 13-year low and the number of homeowners owing more than their homes are worth declined by 2 million last year.
The good news on housing is leading some market observers like former Budget Director David Stockman to say a new housing bubble is being created, fueled by continued low interest rates from the Fed.
Related: This is Housing Bubble 2.0: David Stockman
Others point to mixed data in the housing market including an 8.5% drop in January housing starts and 7.3% decline in new home sales—both compared to the previous months—and a slight drop in homebuilder confidence.
Michael Santoli, senior columnist at Yahoo! Finance, says, “It’s way too early to talk about getting back to bubble-like conditions” in the housing market. Mortgage rates are low and home prices are more affordable but banks are still somewhat reluctant to lend, says Santoli. “People are a little bit too quick to call bubble on any asset right now. Usually the next bubble we get isn’t the same one we just had."
Economist Nouriel Roubini who did call the housing bubble in late 2006 recently told The Daily Ticker that the Fed’s current low rate policy will create another asset bubble “bigger than the one we had in 2003-06,” but he didn’t say that the bubble would be in housing.
Related: Nouriel Roubini Is Bullish...For Now: "The Mother of All Bubbles Has Begun"
And it’s still unclear whether the rebound in housing will last. “This is definitely the most sustained rally in housing prices since the bottom but we have had a couple of others where for six months to a year housing prices went up…ad then they just rolled over again,” says The Daily Ticker’s Henry Blodget.
“One of the ingredients of a bubble is people buying for noneconomic reasons because they think someone else will buy it for more,” says Santoli. “We don’t have that here. If you look at the rent versus buy equation it still favors buying in many cases, if you can get the mortgage.”
We’ll get more information on the housing market Tuesday when the latest S&P/Case-Shiller home price index is released and the Census Bureau reports on new home sales for January. We may also learn more about the Fed’s plan for interest rates, which is fueling the bubble talk, when Fed Chairman Ben Bernanke gives his semi-annual testimony about the economy before the Senate Banking Committee.
Stay tuned!
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