Another Housing Bubble? Maybe Not

Significant post-crisis home price appreciation is not necessarily a sign that another housing bubble is imminent, largely due to the “healthy fundamentals” that the housing market is currently experiencing, according to Nationwide’s quarterly Health of Housing Markets Report released Monday.

Whereas a majority of housing markets showed signs of trouble at least two years before the bubble burst in 2008, things are different this time around because the fundamentals are keeping homes affordable in the face of home prices that have risen to pre-crisis levels in many areas. In a handful of regional markets, home prices have risen above their pre-crisis peaks.

“Home prices reaching or even passing their pre-crash highs of a decade ago does not signal a bubble in the near future,” said David Berson, Nationwide SVP and chief economist. “Even with record-high prices in some markets, housing remains relatively affordable, and we are not concerned about a national bubble.”

The fundamentals driving housing affordability are continued job growth, income growth, and near-record low mortgage rates. Additionally, tighter mortgage underwriting criteria and a lack of overbuilding should support housing in the year ahead, Nationwide reported.

Housing metrics such as steady declines in delinquency rates, foreclosure inventory rates, and the number of underwater homeowners are all indicative of a healthier housing market. Only about 7.1 percent of homeowners are currently underwater, according to Berson.

“We’re optimistic that the housing market will continue to boost the U.S. economy,” Berson said.

Nationwide’s report, which covered 400 U.S. metro areas, indicated sustainable housing activity in the next year for a majority of local housing markets, with little chance of downturns.

The report found six markets where incomes are not keeping up with home prices, however: Dallas, Houston and Austin, Texas; Denver, Colorado; and San Francisco and San Jose, California. Several markets where home prices experienced the biggest increases during the housing boom remain more than 20 percent below their peak, including Bakersfield and Fresno, California; Las Vegas, Nevada; Orlando, Florida; and Tucson and Phoenix, Arizona.