The Housing Bubble Blog had a very good post on the state of the housing market in Pheonix that got me thinking today. Is it really a bubble? BlueBird posted on the market value of a home and has some very nice graphs. Some people are still buying too.
So is it really a bubble? And if so, is it about to go POP!?
In short, no. The housing market is much like any other financial market. It goes through ups and downs. What we are seeing is the inevetible leveling off of a market that was too good to be true. The world isn’t going to come crashing down around us, but we are about to experience a bit of a “correction.”
A market correction will be good for the market in the long run. It might even eliminate some of the “flippers” who are buying and selling houses for profit like they were beanie babies. The only reason that flipping worked so well over the last year was because you could buy a house in March, put 10k into it, and between the improvements and the 20k in appreciation, sell the house for 50k profit. When the market corrects and levels out, the profit margin on flipping is going to dwindle and level off. It will still be profitable, but not nearly as profitable as it has been.
What does that mean for the rest of us? Well, I don’t participate in flipping and I already own my home. I live in an area of the country that is nearly invisible to the real estate moguls and as such, the property values have appreciated at what would be considered a normal rate. What it really boils down to is that it will be exactly the same market as it was a year or so ago. The percentage that a house’s value rises in a year will dip back down into single digits and sanity will return. Well, maybe not the sanity part.
What is causing the correction? Rising interest rates. Market saturation. Take your pick of either of those or one of several others I’ve heard lately.