Among several housing-related stories making the news around here locally asks the question, Is there a Columbia SC housing bubble in our future? Before we can attempt to answer the question, let’s define what is meant by a “housing bubble.”
What exactly is a "Housing Bubble?"
A “housing bubble” is an increase in housing prices fueled by demand, speculation and fervor in the market. Bubbles normally begin with an increase in housing demand, usually accompanied by a very limited supply. When speculative housing investors enter the market it further spikes demand, which increases prices even more.
While the definition certainly sounds like what’s been trending in the housing market lately, let’s look at several reasons there isn’t a Columbia SC housing bubble on the horizon.
Average home prices are currently higher than they were in 2007 in more than 20 major metropolitan markets. In addition, larger cities with limited home inventory of both new and existing homes are seeing prices rise as high demand continues. Home sales throughout the nation recently reached the second highest level in more than 10 years, according to the National Association of Realtors. Despite these occurrences, some housing analysts say any “bubbles” that may exist are relegated to certain local markets, and the bubbles haven’t created the financial risk inherent with the housing boom of roughly 10 years ago. The earmark of the housing bubble that occurred during that time period was the easy availability of credit – highlighted by borrowers that should not have qualified for mortgages they received.
Still, the housing market is nowhere near where it was during the housing boom – and the resulting bust – that made just about every city's real estate news almost daily.
While mortgage interest rates are near record lows and the affordability of housing is still high, absent are the speculative buyers driven by easy credit availability. During the boom, many of these speculators were investors seeking to make a quick profit. In addition, the lenders who fueled that speculation along with making credit available to non creditworthy borrowers have long since learned their lesson, it appears. So, too, have the mortgage lending regulators, who have implemented a range of policies and procedures to better safeguard lending institutions from violating lending practices that may repeat history.
The Columbia SC housing bubble debate continues.
Experts say definitive housing bubbles are a rare occurrence. Despite some of the warning signals that exist in today’s market, the truth of the matter in today’s Columbia SC real estate market is, there are just as many other factors that are non-existent.
A great number of well-respected economists have studied and tracked housing bubbles. Most of them agree that when a market bubble occurs, home prices increase slowly to being with and gain traction and momentum in time. During this rise in prices, the home buying public is usually skeptical and unfazed initially. Economists say they’ve seen the same sorts of bubbles in other markets – stocks, commodities, futures, even art and wine. Over time, the initial skepticism morphs into a semi-acceptance by the buying public, as they witness prices being pushed even higher, or as the name implies, the bubble gets bigger.
As the low cost and high availability of mortgage credit gives the bubble a greater opportunity to continue to grow, it invites new participants. Many of these new purchasers, or speculators, are less credit-worthy and less savvy than typical real estate investors. However, they all have one thing in common – they all envision selling their newly-acquired real estate properties at a profit – fueled by the higher prices they feel they can command. This increased speculation can grow at such a rapid pace that the news may imply “the sky’s the limit” when it comes to housing prices in such a market. The result? Investment growth expands so much that it increases the housing supply, which in turn exceeds the existing housing demand. When supply outweighs demand, prices fall – or in this case, the bubble bursts.
Economists argue that what’s missing in the Columbia SC housing bubble equation is widespread participation on the part of the buying public. Gone are the days of flipping condos in popular locations. Gone, too, are the mortgage loans made on homes that exceed their value. The biggest change is that borrowers with poor credit aren’t able to borrow money as easily as they were during the housing boom and resulting crash. A case in point is the simple fact that it’s difficult, at best, for a homeowner who is still underwater on his mortgage to refinance.
Looking ahead.
Some real estate analysts say they expect certain changes in the near future to occur that may burst any regional, localized Columbia SC housing bubble that may exist. They cite potential interest rate increases by the Federal Reserve as among such events. However, they are quick to point out that the banking system today – unlike the real estate news of a decade ago – isn’t overwhelmed with sub-prime mortgages. In addition, most banks aren’t leveraged to the success of the real estate market anywhere near the degree that many were years ago.
Simply put, the existing housing market issues aren’t severe enough to spark another recession – at least not one of national proportions. Most economists agree that there may be a series of “mini-recessions” that are locally or regionally based and will only affect the players in high-end residential or commercial real estate. That bubble – if it can be called a bubble – will likely burst.
In the meantime, there will be expected fluctuations in housing market supply and demand. New home construction will continue to try to keep pace with the demand for new products and new home innovation at prices average American families can afford. And while interest rates may not stay as low as they have been, there’s little reason to believe that mortgage availability will suffer for the time being. Comparatively speaking, while there are some similarities in the true definition of what a Columbia SC housing bubble is, the simple truth is that the U.S. is no where close to the dire straits the housing market found itself in just a short decade or so ago.
See more articles pertaining to real estate news in the section of articles on Columbia SC Real Estate News just below Columbia SC Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there, too.
A recent S&P/Case-Shiller Home Price Index was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another Columbia SC housing bubble forming?
Economists point to several reasons why this isn’t a concern, namely that while prices keep rising, the rate of growth has slowed. In the first three months of this year home prices gained 0.8%, according to the S&P Case-Shiller national index. That’s down from 2.8% in the first three months of 2013 and 1.2% during the same period of last year.
Over the long-term, housing has tended to rise about 1% annually above inflation. According to the Bureau of labor Statistics, $1 in pre-bubble 1997 is $1.46 in 2015 dollars. A 1% gain over the past 17 years adds 18.4%.
If we add inflation and a 1% annual gain, we find a historically justified target around 110 on the Case-Shiller index.
The chief economist for the National Association of Realtors has gone on record as saying that prices could surpass the peak set during the last housing boom…
Economists also aren’t concerned about a Columbia SC housing bubble because far fewer new homes are being built than a decade ago so there is little concern about oversupply. And most buyers are using cash or getting 30-year, fixed-rate mortgages that don’t carry the same risks as the sub-prime, adjustable-rate mortgages that many received during the boom.
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Some economists said that’s a sign of a normal housing market because in a bubble prices typically rise in tandem across the country, rather than responding to the strength of local economies. That doesn't seem to be happening now, which is strength for the argument that a Columbia SC housing bubble is not in the picture, at least not for now.
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Stay abreast of news that could trigger a Columbia SC housing bubble, as well as a bubble nationwide, by staying plugged in with our website. And don't forget, we post news daily at Twitter and on our Facebook Page to help you stay up to date on events related to the housing market.
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Is there still a potential we could see another Columbia SC housing bubble? A top Federal Reserve official says yes.
A mortgage market bubble in part caused the 2007-2009 financial crisis and Great Recession from which the world's largest economy is still recovering. In response, the Fed has depressed interest rates and is buying $85 billion in assets each month, including $40 billion in mortgage-backed securities (MBS).
But citing rising year-over-year Columbia SC housing prices, Dallas Fed President Richard Fisher warns that the central bank's hyper-accommodative policies could be inflating dangerous asset price bubbles.
Fisher said, "We have to be watchful and realize there has historically been an era of the Fed over-stimulating since the Great Depression."
Mortgage Rates to Blame For Columbia SC Housing Recovery Slowdown
Home resales rose in August and median prices were up 14.7 percent over the previous 12 months nationwide, according to the National Association of Realtors, although other data have suggested a sharp rise in mortgage rates was responsible for a dent in the Columbia SC housing recovery.
The deal approved in Washington to reopen the government after a 16-day shutdown resolves no fundamental differences on spending and taxes that divide Democrats and Republicans. But it also leaves open the possibility of another government shutdown – and potentially another debt crisis – early next year.
Fisher said, "kicking the can down the road for a few months will not solve the pathology of fiscal misfeasance that undermines our economy and threatens our future."
Fisher often blames lawmakers' inaction on resolving long-term U.S. fiscal imbalances for dragging down the economy and hurting the Columbia SC housing market. Though he has also been a vocal critic of the Fed's massive bond-buying stimulus. He said, "continued Fed bond-buying could actually make matters worse, if the U.S. central bank is seen as an agent of financial recklessness."
We'll keep you informed on any news that might affect Columbia SC housing right here at this website. For continuous Columbia SC housing news, click the Columbia SC Real Estate News link to your right under Columbia SC Real Estate Categories.
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No, NOT Another Housing Bubble
All the news of late has been talking about another housing bubble, including our report here last month. The double-digit home price increases and the return of bidding wars have led to a lot of "bubble" talk lately.
But today, we're going to tell you why we are NOT in another housing bubble, nor are we about to be. Read on!
First, prices, as measured by Case-Shiller, are still down 27 percent from their peak seven years ago. But Case-Shiller calculates nominal prices, not real ones. And the consumer price index (inflation) is up 15 percent since 2006. So real house prices are about 37 percent below 2006 levels and are just now returning to where they were 13 years ago.
It takes a larger percentage increase to offset a percentage decline. Take a $100,000 house at the peak. If it fell the real national average 42 percent during the bust, it would have been worth $58,000 at the bottom early last year. But to get back to $100,000, it would take a 72 percent increase from the bottom.
Even now, after the sharp bump off the bottom, prices would have to jump 60 percent to get back to their bubble-era peak.
You also have to remember that some land-constrained individual markets are prone to booms and busts and probably always will be.
One could argue that the bubble of the 2000's was so insane that we don't have to get back to those levels to have another bubble. And that's true, but there are plenty of other indicators that say we aren't in one.
For instance, is it better to rent or to buy? It's still better to buy, according to S&P Indices calculations. The essential question regarding any bubble is: Does the investment make sense? Can homebuyers actually afford their mortgages?
Homeowners are spending a historically low amount of their income on their mortgages—just 13 percent, according to Zillow. From 1985 to 1999, that number was 20 percent. In the bubble it was nearly twice what it is now. In 1979 it approached three times today's levels.
The economy can't get back on its feet until housing starts really moving again. Low interest rates make it possible for buyers to afford higher prices. As interest rates start to rise in the next year or so, that will counterbalance the surge in prices, as will an increase in inventory, as underwater homeowners are able to sell their houses without losing money.
To really have a housing bubble, you have to have lots and lots of transactions. And while sales are up (remember, that’s a good thing!) they’re still at 1999 levels, even though we have 10 percent more households since then. Transactions of new and existing homes would have to pop 55 percent to reach peak bubble levels—roughly 3 million more deals a year.
That's not happening anytime soon.
Bear markets don't last forever, and not every recovery is a bubble.
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Protect Yourself Against Moving Scams
Hiring a moving company can be complicated, and even an honest mover can disappoint a consumer unless they know their rights. And those rights can vary depending on whether you're moving between states or within one. Don't be duped by low-ball estimates and then the mover grossly inflates fees after loading your possessions onto their truck. Consumers need to protect themselves, and here's how:
Get Recommendations
Try not to rely on newspapers, phone-books, or online ads for the names of movers. Instead, get recommendations from friends, family, or reliable real estate agents. Plan to obtain estimates from at least three companies. Avoid movers that can't provide an address or licensing information. Ask if they have marked trucks, and use a mover that does. Never hire a company that relies solely on a phone or online estimate, or one that requires a large deposit.
Check for Complaints
Along with licensing information, the federal website and some state sites list complaints against movers. Also check the BBB (www.bbb.org), and search with the company's name to find reviews and complaints on online forums and complaint websites.
Verify Licensing
New Jersey officials conducted a sting operation last year that resulted in fines against 25 unlicensed moving companies with listings on Craigslist, Angie's List, and other websites. Several movers had outstanding warrants; two were wanted by U.S. Immigration and Customs Enforcement. Interstate movers are licensed by the Federal Motor Carrier Safety Administration, which offers information on how to screen them, at protectyourmove.gov. The site also has a list of state regulators who oversee in-state movers. (Click on "State/Local Resources" when you get to the site.)
Know Your Rights
The federal government and some states require movers to provide booklets explaining your rights. Although the federal "Your Rights and Responsibilities When You Move" doesn't apply to in-state movers, it's a must-read for all. Find the title under "Are You Moving?" at protectyourmove.gov. Also check the consumer information on the American Moving & Storage Association’s website ( www.moving.org ).
Making Complaints
If there's a problem after the move — you notice items are damaged or missing — contact the mover immediately. The mover should have given you a copy of its procedures for handling complaints and inquiries. If you think you've been defrauded or the mover violated the law, contact your state attorney general or consumer protection agency. If you think the mover is illegally holding your possessions and trying to rip you off, contact the police. If ultimately you need to sue in small-claims court, send your mover a demand letter with your complaint and what you're seeking.
Moving companies can leave you fighting for your possessions if you don't become pro-active in the process of finding a reputable mover.
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Home Sales Up Despite Slim Inventories
Pending home sales — the measure used by the National Association of Realtors to indicate completed sales about two months ahead — rose only slightly from March to April, a mere 0.3 percent. But those rising prices are helping keep homes off the market as many homeowners in negative equity and banks holding foreclosed properties opt to stay on the sidelines.
Based on contract signings for the sale of existing homes, the Realtors' Pending Home Sales Index is up 10.3 percent from a year ago to the highest level since April 2010, right before the expiration of the homebuyer tax credit.
Total existing home sales are expected to rise just over 7 percent to about 5 million this year, according to NAR. The national median existing-home price should increase close to 8 percent and exceed $190,000 in 2013.
"Because of inventory shortages, higher home sales will push up home values to the highest level in five years," said Lawrence Yun, NAR chief economist.
The Pending Home Sales Index in the Northeast jumped 11.5 percent to 92.3 in April and is 17.7 percent above a year ago.
In the Midwest, the index rose 3.2 percent to 107.1 in April and is 15.1 percent higher than April 2012.
Pending home sales in the South slipped 1.1 percent to an index of 119.2 in April, but are 12.3 percent above a year ago.
With significant inventory constraints, the index in the West fell 7.6 percent in April to 94.6 and is 2.6 percent below April 2012, blamed strictly on the low number of homes for sale to satisfy rising demand.
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How To Do A Final Walkthrough
When the home buying process is nearly complete, many buyers start relaxing and focusing on other details, such as purchasing new furniture and looking at paint samples.
But there is one more crucial step to take before closing on the house: a final walkthrough. This is the last chance before closing to make sure everything is in working condition.
A final walkthrough can not only help you feel more confident about your purchase and avoid buyer's remorse, it can also pinpoint any last-minute problems that should be taken care of before settlement.
When to Schedule a Walkthrough
A house walkthrough should take roughly 30 minutes to complete, enough time for you to be extremely thorough. During this assessment, you should check for new issues that may have come up since the last time you viewed the home.
This is especially important if a major event, like a severe storm, occurred during that time period. Once you close on the home, previous owners are not obligated to fix new damages that may have occurred.
Be sure to schedule a timely walkthrough, about 24 hours before closing on a home, to address any potential problems.
What to Look For
You should check all major appliances to ensure they are in working condition. For example, consider turning on the dishwasher and washing machine, checking outlets and light switches and testing other basic operations. Don't forget to turn on water faucets and flush the toilets, providing water is on in the house. You might also request warranties and owners' manuals for appliances.
Look to see whether any fixtures the seller agreed to leave behind (a chandelier, for instance) are missing. Check to make sure any previously agreed-upon repairs have been made. Then, look over the general condition of the property, inside and out: Are there damages like scratched walls or floors that occurred when the homeowner moved out? Did they leave unwanted furniture or other things behind? Is the yard and overall property in good shape (or, rather, the condition it was when you last saw the home)?
Many industry professionals recommend buyers bring a home inspector with them to look for any problems, and to confirm that repairs were made as requested and to their satisfaction. For this kind of service, home inspectors will typically charge much less than their original inspection costs.
Take Action Quickly
If you do find problems, you have a few options. First, you could choose to walk away from the deal altogether. However, most professionals encourage buyers to consider how significant the problem is before walking away. Is avoiding a $500 fix worth losing your dream home?
You may choose to postpone the closing until the sellers fix the problem. If sellers balk at having the problem fixed, and the repair was agreed upon during negotiations, you do have legal recourse — although it is recommended the buyers and sellers try to reach an amicable agreement to make the closing go more smoothly.
Take your time during a final walkthrough to ensure there are no surprises after the closing. Once this important last step is complete, take a deep breath, relax and smile: You are about to be the proud owner of a new home!
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Signs of a New Housing Bubble?
In various parts of the country, people are starting to use terms to describe the real estate market such as "overheated" and "skyrocketing prices" and "buying frenzy".
The discussions are not all that isolated either. Housing has been a tricky industry to read, as economists fail to agree on where we are in the recovery process.
Home sales are up, inventory levels are tight, mortgage rates are low, housing starts and permits are up, and three in four major metros are considered improving markets. Various indicators imply that housing is improving as the crisis has come to an end and the nation is trying to catch its breath before it begins walking again.
The U.S. Census Bureau says housing starts have hit their highest level since 2008 (the year the economy crashed, by the way), and although construction of single-family homes fell slightly, total starts rose seven percent in March over February, rising 47 percent over March 2012.
Home values are rising faster than rent, and while national home values only rose 0.1 percent for the month in the most recent report, it still marks 17 consecutive months of home values increasing.
Home values took massive hits when the economy tanked, and many homeowners suddenly found themselves underwater on their mortgage.
While there are many indicators to take into consideration, this simply addresses the tip of the iceberg. The fact is that as a whole, housing is no longer plummeting into a hopeless abyss, rather is trying to climb its way out of one – but the industry is not out of the hole yet, and unless politicians interfere, the sector could see some substantial improvement (but not necessarily a full recovery) this year.
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Features Buyers Say They Will Pay Extra For
Some home shoppers say they are willing to spend thousands of dollars above the price of the home in order to have certain interior features.
The most coveted home features tend to center around the kitchen, such as stainless steel appliances and a kitchen island, says Errol Samuelson, president of realtor.com.
Here are eight features that made the list and how much extra, on average, buyers say they're willing to pay for having that feature in their home:
- Central air conditioning: $2,520
- New kitchen appliances: $1,840
- Walk-in closet in master bedroom: $1,350
- Granite countertops: $1,620
- Hardwood floors: $2,080
- Ensuite master bath: $2,030
- Kitchen island: $1,370
- Stainless steel appliances: $1,850
The features described are not necessarily the most important deciding factor for potential home buyers. When looking at a house, the first things people consider are factors such as the neighborhood, the school district and the difficulty of the commute to work.
There is a difference in people's preference and what they are willing to pay for things. Many people seem to want the steak but are on a hamburger budget.