Which Real Estate Markets are Too Hot?

Published on: Dec 23 2015

This blog post analyzes the S&P Case-Shiller home price data to look at long-term trends in both nominal and real (after inflation) prices for average homes in major markets. It points out that the question home buyers need to ask today is: What will people be able to pay for this home after mortgage interest rates reach normal levels? The conclusions is that some markets might be too hot, others are in the middle, and still others are suffering prolonged negative effects of the bubble and crash.

Still, there are concerns from housing analysts that low mortgage rates have allowed buyers to pay more for homes that would look unaffordable relative to incomes if mortgage rates rose to 5% or 6%. “It’s not a bubble, but some markets are overpriced,” said John Burns, who runs a homebuilder consulting firm in Irvine, Calif.

For cities where prices have increased briskly, some economists say worries about “bubbles” have distracted from more immediate concerns, namely the drag on the economy from consumers who must devote a greater share of their incomes to housing.

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