Housing Market Bubble Unlikely, Experts Say

Experts conclude that the U.S. housing market has returned to roughly half its former strength, and yet there are no fears that a bubble may ensue. Trulia’s Housing …

Experts conclude that the U.S. housing market has returned to roughly half its former strength, and yet there are no fears that a bubble may ensue. Trulia’s Housing Barometer report, which gauges the market’s recovery, puts the value at 54% of its pre-2008 strength. Home prices continue to rise, but analysts say there are still undervalued, which means they have more growing to do. Even so, less construction than in the pre-crisis days may act to slow the recovery in the near term, and although homeowners don’t prefer it may be what prevents the possibility of a bubble. For more on this continue reading the following article from TheStreet.

The housing market is recovering in fits and starts, but at least there’s a number helping peg its progress.

That figure is 54% — the housing recovery percentage from Trulia.com‘s (TRLA) rating of the housing market’s growth from pre-2008 levels. The housing services firm says the 54% represents the housing market’s track "back to normal," with the goal of 100% representing a complete recovery.

Based on Trulia’s figures, U.S. homeowners are about halfway there, although there isn’t a clear path to recovery for now.

According to Trulia.com analyst Jed Kolko, who penned the firm’s most recent Housing Barometer report, the 54% figure is down from 56% in March, suggesting that the housing recovery is losing some of its steam.

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What’s holding up the recovery these days? Kolko points to a number of issues, prominent among them a fallback in home construction starts — down 16% from March to April, to 853,000.

The good news is that home sales crept up, and foreclosure rates are at their lowest levels since September 2008. Kolko also says that the drop in home construction starts should be temporary.

"The volatile multifamily sector led the decline, dropping 38% month over month. But building permits — a leading indicator of future starts — jumped 14% from March, so starts should bounce back soon. For now, construction starts are just 37% of the way back to normal," Kolko says.

The decline to 54% in the Housing Barometer should be only a one-month deal, meaning homeowners can expect to see there was a rebound in May, he says.

Trulia also reports that the recent housing recovery is no bubble.

According to its Bubble Watch, home prices are actually undervalued by 7%, meaning U.S. home values have room to grow. For some perspective, U.S. home prices were overvalued by 39% in early 2006, before the housing crisis swept the country.

"Home prices fell so much after the last bubble burst that they still remain below normal levels even as prices rise sharply today," he says. "Several forces are waiting in the wings that should slow down today’s rapid price gains before they rise into bubble territory again. More inventory, higher mortgage rates and fading investor activity would each take home-price gains down a notch."

So it’s slow going for the U.S. housing market right now — but at least it’s moving in the right direction.

This article was republished with permission from TheStreet.


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