High Housing Prices Are Causing Real Estate Bubbles At The Local Level

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Recent price hikes in real estate may be a bigger cause for concern. According to the National Public Radio, housing market bubbles could be looming on the horizon in light of overheated housing prices at the local level.

In some metropolitan areas, only 25% of residents can afford to purchase a home. In fact, despite California’s already skyrocketing housing prices, real estate costs are still rising.

To determine the extent of the price hikes, the Urban Institute housing finance center conducted a study. Housing prices have increased by 34% since 2012, yet this increase is still significantly lower than the 84% hike that caused the housing crisis between 1997 and 2006.

Edward Golding, the lead researcher in the study, and his team looked at the affordability of the given areas where housing prices were rising. They found that the average family can still afford the median price of a house.

So although housing prices are on the rise, Golding says, American real estate is still affordable and there’s no sign of a real estate bubble on a national scale.

The local real estate is another story. “[There’s] no national housing bubble,” said Stacey Vanek Smith from Planet Money’s Indicator podcast. “But there are, you know, baby bubbles.”

Several of those baby bubbles are in Florida. Florida’s weather, lack of personal income tax, and 39,325 eating and drinking locations make it a favorite state among Americans.

Yet, according to Lawrence Yun, chief economist and senior vice president of the National Association of Realtors, Florida may no longer be a favorite among international buyers. At the 12th annual Global Conference, Yun indicated a trending decline in international real estate buyers in Florida.

The artificial property tax cap set to be voted on this coming November also has many nervous. The law would place a 10% cap on non-homestead properties (properties not used as a primary residence).

The Miami Herald reports that the law could create a dramatic disparity in taxes. Property owners may be forced to sell their properties, which could lead to a market correction throughout the state and abruptly lower real estate costs.

Additionally, a growing number of potential homebuyers are intimidated by the real estate market. A home is the most expensive thing a person will buy (a car the second most expensive and furniture the third).

Yet, according to NAR’s first-quarter Housing Opportunities and Market Experience survey, only 68% of potential homebuyers expressed that now is a good time to buy a house. That’s the lowest percentage recorded by NAR in two years.

Some of the top reasons keeping potential homebuyers from becoming true homebuyers include debt, income, and anxiety. A part of that anxiety comes from increased responsibility.

For instance, property owners are responsible for plumbing issues, aesthetic problems, and building security. Homeowners have to pay for each of these issues themselves and up to 90% of burglaries are never solved.

“They need to believe things will turn out well after buying,” said Yun. But the competitive nature of the current housing market is making many buyers feel rushed to make a decision and the result is a cautious consumer population.

With the vote on the property tax cap set for November, the potential for Florida’s real estate bubble to burst is higher than ever.

“The bubbles are when you’re getting away from fundamentals,” said Golding, “when the demand is sort of outstripping the supply, but that demand can easily disappear.”

This article contains general information and does not contain legal advice. Buy It, Rent It, Profit is not a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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