Trulia: Why we're not in a housing bubble

Homes are still undervalued in 91 of the top 100 metro areas, according to Trulia's analysis. Several factors signal a bubble is not imminent.

By Teresa at MSN Real Estate May 14, 2013 11:57AM

With the way home prices are rising in some areas, you can't help wondering if we are in another housing bubble.


Not so far, says Jed Kolko, the chief economist of the real-estate portal Trulia. For there to be a bubble, home prices have to rise beyond the homes' fundamental values.


According to his analysis, that is not happening, at least in 91 of the largest 100 U.S. metros. Nationwide, homes are undervalued by about 7%, he calculates.


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© Stockbyte/Getty ImagesThere are a few areas where Kolko sees homes as overvalued and flirting with bubble territory. Those areas are the California metros of Orange County, Los Angeles, San Jose and San Francisco; the Texas cities of Austin, San Antonio and Houston; Portland, Ore.; and Honolulu.


But, Kolko notes, even those areas are far less overvalued than they were during the boom. Orange County, for example, is 9% overvalued by his calculations, compared with 71% overvalued in the first quarter of 2006.

Other analysts agree that the current rise in housing prices is not a bubble. Those analysts include Rick Sharga, executive vice president with Carrington Mortgage Holdings. "This is not a 2005 market," he told attendees at a real-estate conference last month.

Kolko points out how difficult it is to predict a bubble, especially before it bursts. He writes:

Bubbles are notoriously difficult to predict and hard to confirm until after they’ve burst. It’s impossible to be sure whether price gains are justified by fundamentals until, if and when a bubble bursts. San Francisco home prices, for instance, are the highest in the country; is that “irrational exuberance” by speculative homebuyers, or are those prices justified by strong job growth, high incomes, great weather and constraints on the local housing supply?

But, Kolko suggests, several factors make a new bubble unlikely any time soon. Those include an increasing number of homes for sale, declining investor interest and an expected increase in mortgage rates.

What do you think? Is there any danger of an imminent housing bubble?

May 28, 2013 6:40PM
Blackstone, and u-haul are one of the corp. that bought most of the homes leaving the banks holding on to the home that they foreclosed on, holding on while the prices go up. Making less home on the market,and driving the price up. Blackstone stocks went from 11.00-23.00 per share in a few months U-haul going into home rentals. soon the banks will release these home, and sending the home value down were they belong.  All the home owners like myself love it our home are  doing well.   But people that are trying to buy are out of luck, and the ones that do get in will see another bubble. Blackstone is a British firm.  Here in Sacramento, Ca. they have bought more then 1200 homes 200 thousand or less.
May 28, 2013 5:07PM
This bubble will burst soon. I'm betting on it.
I know that there's alot of foreclosures not listed....yet.
Government is hiding this information from the public.
May 28, 2013 2:00PM
I look at the number of experts that pop up regarding RE investing. In boom times everyone is a genius and thinks they can time the market. Every half educated loser twat thinks they know some magic investing secret in a boom time. When the bottom falls out, real investors that have THEIR OWN MONEY to work with, go out and hunt for deals and buy quickly. Meanwhile the hyped up losers dry up and blow away. If the camp followers come back with their house flipping nonsense or their whacky nothing down circus acts then I'll know we've got another bubble happening.
May 28, 2013 1:12PM

I compare what my home is worth and what the dollar is worth. Today's $250 is not the same $250 of a few years back. If Osama's group continue to print money and tax the crap out of us my home will remain in the state of valuation it is or worse even though I believe it is important to continue to invest in maintaining my property during a down cycle rather than allowing it to fall apart. However, I never went overboard in the first place. A realistic value is what makes the true difference between profit and loss. Buy low, sell high, invest only what you need to attain your goal for the area you're in. Any more than that and you've thrown away your profits.

Lenders know exactly what thy have to do to manipulate the market with interest rates, inventory and sub-prime loans to get your money, as much as they can, as fast as they can. Don't kid yourself, look behind you, there is ALWAYS another sucker lined up.

A bubble? Oh yeah, it's the same ripple that we'll see for a decade which all equates to lender profits not consumer equity.

May 28, 2013 12:32PM
the number of subprime loans is starting to rise again.............LOOK OUT!

Why the increase while there is still a housing glut?  Because homes are still being held off the market and some are even being destroyed.  That's why.


May 15, 2013 4:12AM
Our brilliant leaders inc Bush and Owebama rescued the big money class that had sought to capitalize on unsafe(if high-returning) investments(mortgage-backed securites) - TARP. They did so on the backsof middeclass(home owning) Amerika. And now we wonder why our homes are worth a fracxtion of what they were, and why Wall Street big moneyers are making bank - wake up Amerika - a few public servants have made you servants to the big guys.
May 15, 2013 3:58AM
As long as the cost stays below $80.00 per sq foot on a sfh, and the homes are post 2000, there is no bubble. In SW FL you are at about 120 per sq foot to build new.

May 15, 2013 3:45AM

Keep in mind Trulia did such a cracker- jack job of predicting the last bubble.


This is on par with a payday loan vendor telling me that 68% interest is still pretty reasonable.


Is there a bubble? I'm not sure but I know who I will not be asking for a valued opinion: Trulia and Barney Frank.



May 15, 2013 3:12AM
The housing market is rising for one reason only: The rich and corporations are buying up properties and either flipping them or renting them out.  What is truly hilarious is the libbies are now fine with that since Owebama is president but blamed these evil, rich folk out to screw the little guy, when it happened in the early 2000's.  LOL!

May 15, 2013 2:40AM
Translation:  Sequestration will not affect the printing press in the immediate future - Barry can continue to spend paper that is being printed as currency that we don't really have. 
May 15, 2013 1:59AM
You cannot pay any attention to these self appointed experts.  Know the market and area where you are investing.
May 14, 2013 9:26PM
Regulate prices???  On real estate??   That's great advice for all you Karl Marx fans out there.  Or was that one Obama's ideas?  Yes, I'm sure that will work, and there will not be any unintended circumstances, or pesky constitutional concerns.   Maybe David Hansen could move to Cuba, or N. Korea, for awhile to see how great and effective all-powerful govts are... or even the People's Republic of Santa Monica might be nice for him.
May 14, 2013 8:52PM
Those areas also have jobs. Plenty of them. It can be guessed that since the population in that area has more money, the banks are going to charge more. Not necessarily "people flipping houses" because the banks in those areas never really "sold-off" excess real estate there. I think that the homes in those areas are over-priced and creating a mini-bubbles. Meaning most people will go back to commuting to work from outside areas that are cheaper rather than spending more. Call it the re-creation of the suburbs.
May 14, 2013 8:10PM
Prevent bubbles by regulating prices. These places that have overvalued prices are just people flipping houses. If people cannot control their cost it will be controlled for them.
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