Home prices have been accelerating faster than general inflation. So, should the housing market be worried about a housing bubble brewing? Urban Institute researchers say there’s no cause for concern, at least on a national level.
Over the past five years, home prices have outpaced inflation by 34 percent cumulatively since 2012, according to UI. The increase, however, is less than half the pace between 1997 and 2006. In that time period, home price growth outpaced inflation by 87 percent.
The median household can afford a house that is $70,000 more expensive than the price of a median house sold, the Urban Institute says. But in 2006, there was a $22,000 shortfall between what the median household could afford and the median sales price.
Despite the recent run-up in prices, home values remain affordable by historical standards. Home prices are following a broader economic expansion and not based on pure speculation, UI says.
“At the national level, then, we are not in a bubble and nowhere near the situation we saw preceding the 2008 housing crisis,” UI says.
However, the report does flag a few markets as being near bubble territory, such as the San Francisco metro area, San Jose, Miami metro, and Oakland, Calif., area.
Many of the metros that have economists concerned have been seeing severe housing shortages over the past few years as well as a boom of international investors buying up homes, and new nontraditional investors buying up homes to rent too. Also, some metros may be “overshooting” since the housing downturn, UI notes.