From the Washington Post:
Any doubts that there is a housing bubble in many of the major markets were dispelled last week by fresh data on home prices and mortgages and warnings from bank regulators.
The National Association of Realtors found that median prices for previously occupied homes rose at double-digit rates over the past year in 66 of the 136 metropolitan areas in its survey. That's the highest number since the Realtors began compiling such tables 25 years ago. For Washington, the figure was 22.7 percent.
Meanwhile, Fed Chairman Alan Greenspan, who has downplayed bubble talk, on Friday warned that house prices can't continue to rise faster than the incomes of the people buying them. "It's pretty clear that it's an unsustainable underlying pattern," he told the Economic Club of New York. "At a minimum, there's a little froth in this market."
I snipped from the beginning and the end of the article for those three paragraphs, but if you read the article you'll realize this is scary news.
Particularly for those who have recently bought a home or those who are in the market to buy a home - like my wife and I.
Ten years ago we bought our first home, and now, two kids and possessions later, we have been looking at homes in our area for the past two and a half years.
We are picky, both on house and on price. But this last week a house came up in our neighborhood, two blocks down, on the other side of our house, remodeled, on the creek... has a swimming pool...
It was the house that we have always said if it came up, we'd put an offer on it. We love our 40-year-old neighborhood and prefer to stay here.
We did put an offer down. We did not get the house.
A year ago, that house would have gone for $260K or so, at best. This week the winning offer was over $320K.
I am normally a person who, once I have come to a decision, comes to peace with that decision. But this week I had a hard time sleeping every night before our offer lost. I just couldn't decide whether the expected price of the house was irrational, or whether this market would continue going up for quite a while. We liked the house, but it wasn't perfect - none ever are. And the backyard was completely against what I want - I want a more natural appearance, not a swimming pool. Regardless, the price of the home was going to preclude our making major changes for a while if we bought it.
My wife and I are a little bummed that we didn't get the house, but mostly because of the price it went for, and what it means for the short-term of what we can afford in our area.
But I have slept well since our offer lost. I am one of those nearly 4 in 10 Americans say it is at least somewhat likely that the housing bubble in their local markets will burst — signifying a collapse of housing prices — within the next three years. I find myself more and more wanting to remain on the sidelines of the market until this occurs.
Such talk from Greenspan, although it was coated with more happytalk about housing, can't help but reverberate with people thinking like myself. Sooner or later, the majority of consumers will make an assessment - what is more likely to happen in the next few years, wage inflation or real estate deflation? And at that point, I think the housing market will emit a low whistling of air.