Real Estate Bubble

Considering the disparities in property value growth, as well as markedly accelerated rates of purchase throughout certain metros, there’s been ongoing speculation that the housing market may be teetering nearer to price instability. Much of the worry around the possibility of a second bubble seemed driven as much by fear of a repeated crash as much as by market technicals, but discussion about housing market hurdles have only persisted well into the third quarter of this year. As I noted in a prior post, this apprehension has only been bolstered by paroxysms of activity in markets that far outpaces the national market consensus.

According to recent analysis from Forbes contributor Sy Harding, there’s a respectable chance that maneuvering around a second housing bubble could be the American economy’s next great hurdle. Sy Harding noted that, in terms of consumer spending, automotive and housing purchases in particular are the heaviest engines of economic growth. The housing market rebounded with exceptional agility in 2012, and new housing starts were up 28.1% this May year-over-year. Throughout the same time period, home sales had risen 15.2% nationwide as well. This was, needless to say, no small solace for both long-beleaguered property investors as well as Americans struggling with toxic real estate holdings.

However, as the Forbes article is keen to point out, much of the momentum for the recovery has occurred from the machinations of institutional investors. Organic market demand tends to have a deeper impact in sustaining price stability, and tends to buoy any given market sector through persistent demand. In cases where hedge funds or singular investment entities are overwhelmingly involved with property purchases, it inevitably produces skyrocketing values at the expense of stabilizing factors. Additionally, home prices that rise too sharply tend to scare away first-time homebuyers, the …read more