The last few weeks have seen a variety of breathless stories announcing a new U.S. housing bubble. Really? Let’s turn a sober eye on the facts.
Prices are rising nationally, though remain well below the peaks of the bull market. With interest rates remaining at record lows, it’s unsurprising that house price inflation has returned, though any gains are likely to be capped by the more stringent mortgage lending standards in place today. Equally, the recent backup in U.S. treasury yields has seen a drop off in applications. With yields normalizing at the hint of Fed tapering, it seems unlikely that either trend is about to reverse.
The chart below shows current U.S. construction spending in yellow and highlights a large gap between current levels and the go-go years of 2004-2007.
Different cities, different trends
Furthermore, it’s interesting how much more localized the price rises are this time. While the 2004-2007 bull market lifted all boats, the sunbelt cities of Phoenix and Las Vegas have suffered steeper price falls and experienced a less robust recovery. New York’s higher incomes, financial hub and greater population density should equate to higher property values, and the same theme holds for San Francisco with its tech hub and stock-option driven real estate market.
Clearly it’s time for the Fed to start taking note of the froth in the market â€“ but to call it a bubble seems rather premature. As the classic saying goes, commentators have predicted nine of the last three recessions. Eventually they’ll probably be right here as well â€“ just not yet.
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