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Does May’s HPI Point to Another Bubble?

The question as to whether or not the housing market is approaching another bubble has been a topic of discussion amongst the industry, especially as home prices continue to rise while inventory shrinks. With each new report—housing starts, existing home index, new residential interest rates, and unemployment rates—experts are looking to see if the data points to a repeat of the mid-2000s crash.

Tuesday’s release of the May S&P CoreLogic Case-Shiller National and Composite Indices represents another anticipated piece of that puzzle. According to the report, on a national scale, which combines all nine U.S. census divisions, home prices showed a 5.6 percent annual gain for the month of May, the same amount reported in April’s indices. Year-over-year, the 10-City Composite was down to 4.9 percent from 5.0 percent in April, and the 20-City Composite shows a similar, albeit small decrease, down to 5.7 percent from 5.8 percent a month prior.

So, does this point to an incoming bubble? According to David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones, it does not for a number of reasons, even though index levels for the National, 20-City, and 10-City Composites are nearing their peak 2006 levels. (The National Composite is 3.2 percent over the 2006 peak; 20-City, 3.7 percent under peak; and 10-City 6.2 percent under).

“[While,] [h]ome prices continue to climb and outpace both inflation and wages, [h]ousing is not repeating the bubble period of 2000-2006: price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20 percent less today than in the earlier period and the months’ supply is declining, not surging. The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.”

Even cities that have shown the highest rate of home price growth are showing signs of slowing. Namely, Seattle, Portland, Oregon, Denver, and Dallas. Seattle has shown a year-over-year increase of 13.3 percent, Portland 8.9 percent, Denver 7.9 percent, and Dallas falling to 7.8 percent.

About Author: Joey Pizzolato

Joey Pizzolato is the Online Editor of DS News and MReport. He is a graduate of Spalding University, where he holds a holds an MFA in Writing as well as DePaul University, where he received a B.A. in English. His fiction and nonfiction have been published in a variety of print and online journals and magazines. To contact Pizzolato, email [email protected].
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