Real estate euphoria: Is America in a new housing bubble?
The benchmark Case-Shiller housing index is partying like it's 2006 — when housing prices peaked
Happy days are here again on Wall Street, and even some corners of Main Street — like the local realtors' office. On Tuesday, the closely watched S&P/Case-Shiller index of home prices was released, showing a 10.9 percent jump in 20 U.S. metropolitan areas between March 2012 and March 2013. That's the biggest increase since April 2006, a few months before housing prices peaked.
Adding to Tuesday's investor optimism, the Conference Board's newest consumer confidence index showed a better-than-forecast jump to 76.2, from 69 in April, suggesting that Americans are feeling more bullish than at any point since February 2008. Even Tiffany & Co. notched surprisingly strong sales for the first quarter of 2008. The Dow Jones industrial average soared 108 points to close at a new record high of 15,411.
Uh oh, says Wolf Richter at Testosterone Pit: "The good old days are back," but for those with short memories, those boom days were "during the last housing bubble, when money grew on trees." Look at where housing prices rose the most — Phoenix: 22.5 percent; San Francisco: 22.2 percent; Las Vegas: 20.6 percent. "I'm already hearing it again": You can't lose money in real estate. For heaven's sake: Even "flipping houses is back in vogue," Richter says:
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Yes, the rise in housing prices has "already ignited new talk of a housing bubble," says The Wall Street Journal's Real Time Economics blog, but "don't believe it." Sure, some regions have seen prices rise more than 25 percent from their post-bubble lows, but none of the 20 cities in the Case-Shiller index is back to its peak level, as Dan Greenhaus of equity trading firm BTIG points out. "Can home prices again be in a bubble and yet be 27 percent below their previous peak?" Greenhaus asks. "Perhaps, but we don't yet think so."
Look, says Ken Layne at Gawker, "real estate is a good investment as a place to live whenever it costs no more than leasing a comparable house or apartment." But "as soon as it costs more, you're buying in a bubble," and that's clearly true again in places like San Francisco, where the median house price just hit $1 million. New York, Los Angeles, and Washington, D.C., are in a similar boat, Layne says.
The "housing bubble" talk is clearly back, "but only a few markets are at risk — so far," says Julie Schmit at USA Today. John Burns, the CEO of Burns Real Estate Consulting, notes that median housing prices were 3.2 times the median household income in April, below the 25-year average of 3.25. "There's zero case to be made that we're in a housing bubble," nationwide, Burns tells USA Today, though he acknowledges that San Francisco and Orange County, Calif., are "starting to look bubble-ish."
Real estate website Trulia agrees that some markets are now "overvalued" relative to fundamentals says USA Today's Schmit, but nationwide home prices are 7 percent undervalued. According to Trulia, "that makes today's price gains a rebound, not a new bubble," and the rebound seems healthy on the whole.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
On average, so far "we've rebounded to mid-2003 housing prices," says Matthew Yglesias at Slate. But here's the big takeaway from the new housing data: It "illustrates how problematic the idea of 'calling' a bubble is."
Create an account with the same email registered to your subscription to unlock access.
Peter has worked as a news and culture writer and editor at The Week since the site's launch in 2008. He covers politics, world affairs, religion and cultural currents. His journalism career began as a copy editor at a financial newswire and has included editorial positions at The New York Times Magazine, Facts on File, and Oregon State University.
-
7 drinks for every winter need possible
The Week Recommends Including a variety of base spirits and a range of temperatures
By Scott Hocker, The Week US Published
-
'We have made it a crime for most refugees to want the American dream'
Instant Opinion Opinion, comment and editorials of the day
By Anya Jaremko-Greenwold, The Week US Published
-
Was the Azerbaijan Airlines plane shot down?
Today's Big Question Multiple sources claim Russian anti-aircraft missile damaged passenger jet, leading to Christmas Day crash that killed at least 38
By Harriet Marsden, The Week UK Published