Bubble fears in certain housing markets across the country seeing substantial pricing gains are ultimately unfounded, says an article in the most recent CoreLogic The MarketPulse.
This year promises to hold large changes for the housing market and its ongoing recovery, writes Anand Nallathambi, president and CEO of Corelogic, in the newsletter’s introduction. Despite above-average rebounds in some metro areas, the overall market will be influenced and balanced by several factors.
“By all accounts, 2014 will be a historic reset year for the housing market. The shift back to a traditional purchase-driven market is underway,” he says. “Unfortunately, 2014 is widely expected to be the trough year for mortgage originations, driven by the combination of lackluster economic growth and a number of other factors, including supply-and-demand dislocations and regulatory uncertainties.”
Nallathambi cited severe weather across most of the United States for a slowdown in refinancing volume, home sales, and new home starts.
“As weather conditions improve, we expect the spring selling season to be a key indicator of the prop sects for the housing and mortgage markets in 2014,” he said. “…Continued weakness in the underlying economy, declining or stagnant income levels, as well as a rapidly evolving and aggressive regulatory environment continue to present downward pressures on a full recovery in housing.”
But while some “industry pundits” are pointing to the home price growth rate outpacing the rental price growth rate as evidence of a housing bubble, there’s more to the story.
“Judging whether home prices are becoming ‘bubbly’ cannot be done simply by looking at the acceleration or deceleration in rental price change versus current home prices,” says the CoreLogic newsletter.
Recent appreciation in home prices is largely attributable to market correction for the “significant undervaluation” caused by the price declines in the 2000s, the MarketPulse says.
“Instead,” the article concludes, “analyzing home price levels relative to fundamental prices leads us to conclude that there is no need to fear a bubble for at least a few years to come, if at all.”
Written by Alyssa Gerace