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The lurking housing bubble

Posted by The Aramco Group on Fri, Apr 14, 2017 @ 14:04 PM

Housing bubbles happen with some degree of prediction. Cycles in the real estate market have been identified and anticipated with some experts pointing to a bubble "bursting" at least every decade. The term housing bubble is used to refer to a run-up in home prices due to high demand, market speculation and geopolitical events. They typically begin as demand for housing grows faster than supply can replenish, as is taking place currently in the U.S.

When short supply and growing demand cause prices to grow faster than wages, consumers will eventually opt for cheaper homes or stop buying all together. That's when the bubble bursts. Home values will plummet, lending will tighten and new home construction will halt.

Experts say construction on entry-level homes can be key to avoiding a bottoming-out of the housing market. Lawrence Yun, chief economist for the National Association of Realtors says he thinks the tight inventory will improve in 2017 averting another national housing burst.

Meanwhile, conforming no-point 30-year fixed mortgage rates averaging 4 percent while 15-year rates are near 3.25 percent.

Do you have a question for Real Estate & Mortgage Analyst Mehran Aram? Submit your queries about a home purchase, refinance, or reverse mortgage via Aramco.Biz, social media (#AramcoReport), or over the phone at (866) 381-8888 and your questions may be featured in an upcoming article.