Despite tremendous home price appreciation throughout the country and homes being overvalued in several markets, Freddie Mac concluded there currently is no housing bubble.
Freddie Mac’s November Insight details several factors showing evidence against a housing price bubble.
“The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years,” Freddie Mac Chief Economist Sean Becketti said in a release. “However, the housing sector is significantly out of balance.
“The incomplete recovery in residential construction following the crisis of the last decade has created several years of pent-up demand for household formation. What we can’t predict is how this imbalance will eventually be resolved,” Becketti added. “Will there be a gradual restoration of a normal balance between supply and demand? Alternatively, will the rate of home building remain stubbornly low, exacerbating the income and wealth inequality that followed the Great Recession? Another bubble appears to be a less probable scenario, but not an impossible one.”
Freddie cited the shortage of houses for sale as strong evidence against a house price bubble. It said the difficulty of increasing residential construction quickly suggests that any price adjustment will be gradual. Currently, residential construction is falling roughly 500,000 homes short of demand every year, Freddie’s report said.
The report also found that easy credit, unlike a decade ago, is not fueling housing demand. Freddie said the volume of home flipping also does not point to a house price bubble.
“Finally, homeowners are not increasing their mortgage leverage. The sharp growth in house prices is generating an almost dollar-for-dollar growth in homeowners’ equity with only negligible changes in mortgage debt outstanding,” the report said.