US House Price Bubble?

[DanS]

Attached is an interesting graph from the IMF about the US real estate market. In short, some states are experiencing house price booms and some not. Nevada, Hawaii, California, DC, Arizona, Florida, Maryland and Virginia are experiencing booms. Are these booms creating a bubble nationwide?

Keep in mind the rule that as interest rates rise, asset prices (f.e., house prices) fall. And interest rates are rising.

In my area, the city of DC is experiencing a boom, but I would argue that it's not much of a bubble. It is due more to the fact that the city's real estate prices have been depressed for a long time due to corruption, violence, and other crime. Add in the fact that the Washington, DC metro area is growing quickly (now about 6 million people) and has a stable and growing economy and it is my opinion that these prices can be sustained.

Virginia and Maryland are in something of the same boat. They benefit from the growth in the Washington metro area. However, the prices in those locales have not been depressed. I expect house prices cannot be sustained in VA and MD, although I think they won't go down too much.

What about in your area?

I note that some of these areas are historically boom-bust anyways. Hawaii has been bust for a while, so I'm not surprised to see a little boom. California has been boom for a while, so I wouldn't be surprised to see a big bust.

[KrazyHorse]

You forgot to mention Rhode Island (sitting between MD and VA)

[DanS]

I didn't mean it to be a comprehensive recital. Besides, nobody lives in Rhode Island anyway.

[MrFun]

Or you just didn't mean to reveal that you don't know all 50 states of your own country.

[KrazyHorse]

Funny, because you managed to be, with the sole exception of RI

Don't forget the little guys...

Emeril is from RI, you know.

[Japher]

I don't think it is a boom. Areas RE goes up in areas where people want to be. I would only think there are bubbles if the price is going up and the population is staying the same. Supply and Demand... right?

[DanS]

That's a useful way of looking at RE, but there are other factors. In DC, it's a switch in the mix of residents. More rich people and fewer poor people. White reverse-flight. The population might even be going down very slightly.

[Japher]

I think the areas that are experience the increase in housing prices are also seeing an influx of residents and buisness which would see an increase the rich ppl as well.

Also note that most of those states are coastal (which RE ppl love) or are states with great tax advantages for corporations, and no sales tax!

[DanS]

Three states among the group (DC, MD, and VA) are growing in large part because federal government spending is growing. The taxes in DC at least are quite high (trust me on this), although the politicians have become much more business-friendly lately. While VA and MD are coastal states, I think most of their increase is due to the growth of the DC metro area.

[Donegeal]

Ok, Dan, what are the implications of the "bubble burtsting" for a Wisconsin (#13 on the chart) home and investment property owner like myself? Take into consideration that I am looking to either build a new home (to raise my gowing family) or expand my business.

[DanS]

Actually, Wisconsin is #25 on the chart. Probably not too much upheaval in that market, just don't get too carried away by doing something that would harm you if the home prices don't go up for several years. Plan for a good investing environment a couple years down the road, as prices level off. Also, after a couple more interest rate rises (a couple of months), make sure that the rents you are charging aren't below market.

[mrmitchell]

Most of the housing price inflation is going on in northwest AR.

There, the problem is, builders are only building high-income housing, since they make the most profit off selling rich homes to rich people.

[Colonâ„¢]

And interest rates are rising.

Are you talking about the actual mortgage rates or just the rate set by the FOMC? Bond rates have been staying put despite the rising fed funds rate, for instance.

[RGBVideo]

That's interesting -- 4 out of the top 5 states there are located within the sun belt.

[chequita guevara]

The median housing price in Broward County (Ft. Lauderdale) is $285,000 . . . or at least it was so reported in the Sun-Sentinal this August.