We are still hearing about the real estate bubble and no one seems to be able to answer the question of whether it has burst or not. Here are a few things to consider:
- First-time homebuyers (in particular) are naturally hoping that prices will come down. They hear about this bubble and get a false sense of security that prices will automatically come down, so they remain on the sidelines. I think that this type of “timing the market” is very bad.
- There has never been a national real estate bubble since the National Association of Realtors began recording median home prices in 1968. Freddie Mac has never shown a decline in national median prices since their record keeping began in the mid-50s.
- In my terms, the definition of a real estate bubble is a massive oversupply of homes coupled with massive job losses. We are just not seeing that. In fact, the Brookings institute reported that the U.S. will need 40 million new residential housing units by 2030.
- The Office of Federal Housing Enterprise Oversight studied 362 metro markets between 1978-2003 and found only 21 real estate busts which they described as a 15% decline in home prices over a 5-year period. That means that only 2/10th of 1% of the markets studied over 25 years were busts and only 9 occurred after a real estate boom, which is described as 30% home price appreciation over a 3-year period. Clearly, the idea that home prices go way up and then come crashing down is simply not true.
- Except for catastrophic injury or illness, sustained loss of a job or other personal crisis, we will not sell our home at a loss. A home is what we live in; it is not a stock or bond and cannot be bought or sold quickly. A home purchase is a complex and emotional decision that is certainly not a routine event.
So what does this all mean? It means that though some segments of the Philadelphia marketplace may see a bit of adjustment (see new construction condos for a good example), it is highly unlikely that we will see any substantial bursting of the bubble.
