Home Prices Up 10%, But Second Housing Bubble Unlikely

The housing market recovery has put Americans into a buying mood, writes the New York Times, following the biggest gains on the Standard & Poor’s Case-Shiller home price index in seven years. But a potential housing bubble “repeat” isn’t likely, economists agree.

The Case-Shiller index tracks 20 cities, all of which saw housing prices rise for the third month in a row. Five cities, including Los Angeles, Portland, Ore., and Tampa, Fla., had the largest monthly gains in more than seven years.

Other positive indicators appeared in new and existing home sales and building permits. Rising home prices provide construction firms with incentive to accelerate building and hiring, says the Times, and as the housing picture improves across the board, it has bolstered consumer confidence and spending.

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“Five years after the start of the financial crisis in earnest, and four years and a week’s time from the beginning of the economic recovery, we’re finally starting to get more of a pickup,” said John Ryding, chief economist at RDQ Economics. “It’s been a very drawn-out process, but you have to remember what we’ve been digging our way out of.”

After a 10.9% increase on Case-Shiller’s 20-city composite index year-over-year—the biggest since April 2006—more homeowners who’ve been wanting to sell, but are waiting for the right conditions, might start placing their homes off the market.

While economists expect home prices to keep rising, says the article, that’s not to say another housing bubble is forming. 

“Talk of a house price bubble seems premature,” Ed Stansfield, an economist at Capital Economics, told the Times. “In relation to incomes, rents or their own past, U.S. home prices still look low.”

Additionally, despite continued economic improvement, credit availability remains low.

“We usually think of bubbles as being driven by extremely easy credit, with people borrowing more than the outstanding value of the house and making little to no down payment,” Michael Gapen, senior United States economist at Barclays Capital, says in the article. “That’s not the case with credit standards today.”

Read the full article at the New York Times. 

Written by Alyssa Gerace

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