NCPA - National Center for Policy Analysis

Is There a Housing-Price Bubble?

August 14, 2002

Investors and others are engaged in a spirited debate over whether the nation's housing market resembles a bubble about to burst. With stock equities tumbling, many Americans have chosen to put their money in real estate -- adding to inflated home prices. Perhaps only time will tell if they have been right. But there's no denying prices are soaring.

  • The National Association of Realtors reports that home prices rose nearly 30 percent on New York's Long Island during a recent 12-month period.
  • The hike was over 21 percent in San Diego, while Washington, D.C. saw prices over 12-months jump nearly 21 percent -- to a median $249,700.
  • Nationwide, median home prices rose 8.1 percent in the first quarter of this year, cooling to a 7.4 percent rise in the second quarter.
  • Despite the talk of price bubbles, most economists don't expect home prices to tumble as far or as fast as stocks -- instead, they predict, prices in the most expensive areas may simply stagnate, or slow to a more normal rate of appreciation.

In fact, while the hottest markets kept soaring, the report from the realtor's association didn't show major price gains for all parts of the country. Price increases slowed in cities like Minneapolis-St. Paul and Dallas, especially in the markets for high-end properties priced above $1 million. Realtors in certain markets say properties have started taking longer to sell and that some owners are dropping their selling prices.

Analysts note that real-estate markets tend to peak two or three years after a stock-market peak.

Source: Patrick Barta, "Housing Prices Soar, Fueling Bubble Fears," Wall Street Journal, August 14, 2002.

 

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