Are we facing another housing bubble?

Are we facing another housing bubble?

By Yahoo Finance

In a housing or real estate bubble, home prices inflate because of overly optimistic speculation that they’ll keep rising. When people can’t afford to keep up, the bubble bursts. Demand for homes decreases, while supply goes up and home prices drastically drop.

Today, certain markets across America are seeing home prices go up so quickly that people are starting to worry about another bubble. So where do we stand?

From 2000 to 2006, home prices were skyrocketing. Why? It was fueled by overly-optimistic speculation on real estate, careless lending standards and very low mortgage rates. At the height of the bubble, homes were overvalued by 39%.

Built on that shaky foundation, when prices cooled millions of people defaulted on their mortgages and the bubble didn’t just burst, it exploded, creating the biggest real estate and credit crisis in modern history.

Fast-forward to the present day, and we’re still in recovery mode. With tighter lending standards it’s harder to buy a home, but in the past two years certain markets have seen prices rise rapidly again, leading some to wonder if history will soon repeat itself.

One area that’s heating up is California — the most overvalued market in the nation. Prices there have increased about 17% year-over-year, with Orange County being the hottest metro area. The increases in California are more generally due in part to investors taking up the tight supply and tech millionaires willing to pay premium prices. The other overvalued metros, like Honolulu, Austin and Miami, are also dealing with high demand and tight supply.

Should this be cause for concern? Trulia’s Jed Kolko, says “not yet.”

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