A recent piece from CNNMoney.com came across my screen the other day entitled “5 housing bubbles to watch“. The report identified housing markets across the globe that are either currently experiencing a housing bubble or that are “looking bubbly”. What countries do you think were named?
The list included:
3. New Zealand
5. the United States
It was the last country on the list that caught my attention. Though I wasn’t entirely surprised, as this story was just one of many “bubble talk” stories that I’ve seen over the past months. Regular readers of this blog, too, have likely noticed a resurgence in such stories appearing in the “This week’s real estate headlines” blog I post on most Thursdays. [See recent “Headlines” posts containing “bubble”]
So what are the reasons this CNNMoney article gave to indicate that the U.S. is experiencing a housing bubble? Unfortunately, the piece does not contain much supporting data from which to draw a conclusion. There is this factoid: the median price for an existing single-family home rose by 12.5% during the third quarter from a year earlier to $207,300. As well as a quote from Dallas Federal Reserve President Richard Fisher; on which was reported in more detail in this Reuter’s story: Fed’s Fisher warns of potential U.S. housing bubble, MBS buys. Given these teasers and curious to learn more I embarked on a search for more data.
Google “housing bubble 2013” and you will find no shortage of prognosticators warning that the U.S. housing market is once again in a bubble; for example, this CNBC story: Yep, it’s another housing bubble
But you will also find a number of economists on the other side of the discussion saying that the country is not in a bubble; for example, this interview with Robert Shiller from The Daily Ticker: Another Housing Bubble? “Maybe Not in Our Lifetimes”
And then there are those who feel the U.S. housing market lies somewhere in between; like Trulia’s Bubble Watch report: Bubble Watch: Home Prices Simmering, Not Bubbling. Where one take-away from Trulia’s report is, as LA Curbed puts it: The US Isn’t In A Housing Bubble But Southern California Is
My personal opinion is real estate is local, and as such, different markets can exhibit widely varying characteristics. So, what of the Reno-Sparks housing market?
To lend a local perspective, 3rd-quarter home sales in the Reno-Sparks market numbered 1,725 and exhibited a median sales price of $220,000. These numbers were up 13.2 percent and 27.3 percent, respectively from the same time period a year ago [1,524 sales with a median price of $172,850]. And although these increases are HUGE quarter-over-quarter gains, the current median sales price is still far from the peak price of $365,000 reached in January 2006 at the height of the housing bubble. Why is that relevant?…
…because much of the bubble talk discussion in the media today is focused on housing prices for the country as a whole and because 2013 has seen new home prices in the U.S. returning to levels not seen since the peak of the housing bubble of the mid-2000’s (see Median and Average Sales Prices of New Homes Sold in United States). Consequently, talk of a bubble inevitably comes into play in the national media.
But, again speaking locally, Reno-Spark’s housing prices are nowhere near their peak prices experienced during the bubble. In fact, October’s median sales price of $215,000 is 41 percent below that aforementioned peak of $365,000. Looking back at historical median sales prices for Reno-Sparks during the bubble years, we see that a median sales price equivalent to today’s was first reached in August 2003. It would be another two years and four months before the peak median was reached.
Median sales price is but one metric analyzed in any discussion regarding housing markets. The aforementioned Trulia Bubble Watch report employs a methodology utilizing a market’s price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trend in order to identify if that market is in bubble territory.
And though Reno-Sparks, Nevada is not one of the 100 largest U.S. metros monitored in Trulia’s Bubble Watch report, our neighbors to the south, Las Vegas, is. And longtime readers of this blog know that the Reno-Sparks housing market tracks similarly to the Las Vegas’ market. So what does Trulia’s Bubble Watch report have to say about the current state of Las Vegas’ home prices?
According to the report, Las Vegas home prices are currently 13 percent undervalued relative to housing fundamentals. And that is despite Las Vegas home prices having increased 30.4 percent year-over-year (October 2013). [For reference, Reno-Sparks home prices have increased a relatively smaller 19.4 percent over the same time period.]
It is data such as this that leads me to believe our local housing market is not experiencing a housing bubble at present. What is your opinion? Are home prices in Reno and Sparks undervalued, overvalued, or where they should be?
[Note: Trulia’s Bubble Watch data for the 100 largest U.S. Metros Based on Population can be found here. I have written to Trulia requesting data specific to Reno-Sparks. If I receive it, I will update this post with that data.]