{"id":2034,"date":"2017-12-28T11:00:43","date_gmt":"2017-12-28T11:00:43","guid":{"rendered":"https:\/\/thezakariagroup.com\/theres-more-to-a-bubble-than-rising-home-prices\/"},"modified":"2017-12-28T11:00:43","modified_gmt":"2017-12-28T11:00:43","slug":"theres-more-to-a-bubble-than-rising-home-prices","status":"publish","type":"post","link":"https:\/\/thezakariagroup.com\/theres-more-to-a-bubble-than-rising-home-prices\/","title":{"rendered":"There\u2019s More to a Bubble Than Rising Home Prices"},"content":{"rendered":"<div>\n<p><img fetchpriority=\"high\" decoding=\"async\" width=\"648\" height=\"354\" src=\"http:\/\/files.simplifyingthemarket.com\/wp-content\/uploads\/2017\/12\/22102220\/20171228-Share-STM.jpg\" class=\"webfeedsFeaturedVisual wp-post-image\" alt=\"There's More to a Bubble Than Rising Home Prices | Simplifying The Market\" style=\"display: block; margin-bottom: 5px; clear:both;max-width: 100%;\" srcset=\"http:\/\/files.simplifyingthemarket.com\/wp-content\/uploads\/2017\/12\/22102220\/20171228-Share-STM.jpg 750w, http:\/\/files.simplifyingthemarket.com\/wp-content\/uploads\/2017\/12\/22102220\/20171228-Share-STM-549x300.jpg 549w\" sizes=\"(max-width: 648px) 100vw, 648px\"><\/p>\n<p>What truly causes a housing bubble and the inevitable crash? For the best explanation, let\u2019s go to a person who correctly called the last housing bubble <em>\u2013 a year before it happened.<\/em><span id=\"more-36790\"><\/span><\/p>\n<blockquote>\n<p><em>\u201cA bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset\u2019s fundamental value, but the real key for detecting a bubble is speculation\u2026Speculation tends to chase appreciating assets, and then speculation begets more speculation, until finally, for some reason that will become obvious to all in hindsight, the \u2018bubble\u2019 bursts.<\/em><\/p>\n<p><em>I have taken to calling the housing market a \u2018bubble\u2019.\u201d <\/em><\/p>\n<p>\u2013 Bill McBride of <em>Calculated Risk<\/em> calling the bubble <a href=\"http:\/\/www.calculatedriskblog.com\/2005\/04\/housing-speculation-is-key.html\">back in April 2005<\/a><\/p>\n<\/blockquote>\n<h4><strong>Where do we stand today regarding speculation?<\/strong><\/h4>\n<p>There are two measurements that are used to determine the speculation in a housing market:<\/p>\n<ol>\n<li>The number of homes purchased by an investor and<\/li>\n<li>The number of homes being flipped (resold within a twelve-month period)<\/li>\n<\/ol>\n<p>As compared to 2005, investor purchases are down dramatically (from 23% to 13%) and so is flipping (from 8.2% to 5.7%). McBride explains:<\/p>\n<blockquote>\n<p><em>\u201cThere is currently some flipping activity, but this is more the normal type of flipping (buy, improve and then sell). Back in 2005, people were just buying homes and letting them sit vacant \u2013 and then selling without significant improvements. Classic speculation.\u201d<\/em><\/p>\n<\/blockquote>\n<h4><strong>What are the experts saying about speculation in today\u2019s market?<\/strong><\/h4>\n<p><em>DSNews<\/em> recently ran an <a href=\"http:\/\/www.dsnews.com\/daily-dose\/12-17-2017\/housing-bubble-2-0\">article<\/a> which asked two economists to compare the speculation in today\u2019s market to that in 2005-2007. Here is what they said:<\/p>\n<h4><strong>Dr. Eddie Seiler<\/strong>, <em>Chief Housing Economist<\/em> at <em>Summit Consulting<\/em>:<\/h4>\n<blockquote>\n<p><em>\u201cThe speculative \u2018flipping mania\u2019 of 2006 is absent from most metro areas.\u201d<\/em><\/p>\n<\/blockquote>\n<h4><strong>Tian Liu<\/strong>, <em>Chief Economist<\/em> of <em>Genworth Mortgage Insurance: <\/em><\/h4>\n<blockquote>\n<p><em>\u201cThe nature of housing demand is different as well, with more potential homeowners and far fewer speculators in the housing market compared to the 2005-2007 period.\u201d<\/em><\/p>\n<\/blockquote>\n<h4><strong>And<\/strong> <strong>what does McBride, who called the last housing bubble, think about today\u2019s real estate market?<\/strong><\/h4>\n<p><a href=\"http:\/\/www.calculatedriskblog.com\/2017\/10\/are-house-prices-new-bubble.html\">Sixty days ago,<\/a> he explained:<\/p>\n<blockquote>\n<p><em>\u201cIn 2005, people were just buying homes and letting them sit vacant \u2013 and then selling without significant improvements. Classic speculation. And even more dangerous during the bubble was the excessive use of leverage (all those poor-quality loans). Currently lending standards are decent, and loan quality is excellent\u2026<\/em><\/p>\n<p><strong><em>I wouldn\u2019t call house prices a bubble \u2013 and I don\u2019t expect house prices to decline nationally like during the bust<\/em><\/strong><em>.\u201d<\/em><\/p>\n<\/blockquote>\n<h3><strong>Bottom Line<\/strong><\/h3>\n<p>Speculation is a major element of the housing bubble formula. Right now, there are not elevated percentages of investors and house flippers. Therefore, there is not an elevated rate of speculation.<\/p>\n<\/div>\n<p class=\"wpematico_credit\"><small>Powered by <a href=\"http:\/\/www.wpematico.com\" target=\"_blank\">WPeMatico<\/a><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What truly causes a housing bubble and the inevitable crash? For the best explanation, let\u2019s go to a person who correctly called the last housing bubble \u2013 a year before it happened. \u201cA bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset\u2019s fundamental value, but the real [&hellip;]<\/p>\n","protected":false},"author":101010,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[98,99,100,102,101],"tags":[],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>There\u2019s More to a Bubble Than Rising Home Prices - The Zakaria Group<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/thezakariagroup.com\/theres-more-to-a-bubble-than-rising-home-prices\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"There\u2019s More to a Bubble Than Rising Home Prices - The Zakaria Group\" \/>\n<meta property=\"og:description\" content=\"What truly causes a housing bubble and the inevitable crash? 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