Over the past two years any upward movement in area home prices tended to raise a question in many
local minds—a question that ends with the word ‘bubble.’
As with any commodity whose price is determined by a
changeable mix of subjective public perception as well as supply and demand, when
home prices head north, there is always the possibility that a ‘bubble’ could
be inflating: an unsupportable rise that could suddenly plummet with a “pop!”
Now comes some reassuring news on that score. According to
a report from real estate website Trulia that covers this
year’s first quarter, the national average of home prices looks to be 5% undervalued when measured by the yardstick of long-term
fundamentals. If they’re right, home prices can continue to rise for a while
before even the first stages of a bubble start to fizz.
As with any kind of market projections, home prices in New
Orleans are subject to movements that can change when unexpected factors
develop: there are never any guarantees (and anyone who says otherwise probably
knows better). And evaluating true underlying values is complicated. Even a
straight-line look at the percentage rise in home prices is a poor indication
of over- or undervaluation. Because of the 2007 drop in residential real estate
in many parts of the country, prices can increase by significant percentages
without touching the highs of 2006. An example is Las Vegas, where prices would
seem to have exploded (increasing by almost 60% in the last couple of years)—yet
remain affordable by many measures.
The truth is, there are a number of different ways to
measure whether a home is over- or undervalued, and each is valid in its own
right. You can look at how current home prices measure against long-term trends,
or how prices measure up against an average income—or just compare them against
the current cost of renting. I favor the report produced by Trulia because it takes
into account a whole range of different indicators to produce a truer picture
of the affordability of real estate across the country.
There are less data-based, more common sense reasons to fret
less about an emerging bubble. Last week, Real
Estate Economy Watch reported that Fannie Mae’s economists are tempering
their estimates for both sales and price increases, even as the outlook by both
prospective home buyers and sellers continues to improve. “The share of respondents who believe now is a good time to sell a home
increased for the third consecutive month to an all-time high of 42%” and
“…the share of respondents who say now is
a good time to buy a home remained steady at 69% following a gradual climb
since the beginning of the year.”
When you remember that new regulations around lending mean
we are unlikely to see a repeat of rampant subprime lending, any tendencies
toward bubblephobia should be dampened. It’s another reason why, if you’re thinking
of buying or selling this summer, it’s a
good time to give me a call for an up-to-the-hour (and non-effervescent) look
at New Orleans home prices!
Terez Harris NOLA Real Estate Group
(504)297-2619
Harris.Terez@gmail.com
Keller Williams Realty New Orleans 8601 Leake Ave. New Orleans, LA 70118 504-862-0100
Each office independently owned and operated. All brokers licensed in the state of Louisiana.
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