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The difference between a 'bubble' and 'overvalued'

NEW YORK – Sept. 21, 2015 – Home prices are rising rapidly, but economists are deflating concerns that another “housing bubble” is brewing.
A recent report from CoreLogic finds that twice as many metro markets are considered “overvalued” – inflated prices relative to incomes – in the second quarter of this year when compared to the first quarter. But economists say it’s not a housing bubble because bubbles eventually burst – and home prices this time around aren’t likely to fall.
“Just because you’re overvalued doesn’t mean that you’re in a bubble or there is an impending crash,” says Sam Khater, CoreLogic’s deputy chief economist. “Some markets are overvalued because of strong fundamentals.”
The National Association of Realtors® (NAR) reported that the national median sales price is now above its 2006 peak. The median existing-home price for all housing types reached $236,400 in June – 6.5 percent above year ago levels and higher than the peak median sales price set in July 2016 at $230,400.
CoreLogic’s recent report finds that home prices in 14 of the largest 100 markets have now risen above its long-term fundamental values – with six of those markets in Texas. Housing demand is strong and supply has been near record lows, which has paved the way for price increases among the state’s strong economy.
About 10 years ago, an impending housing bubble was fueled by free and easy mortgage credit – not the case today, CNBC reports. Today, strong demand and weak supply is driving the rise in prices.
“Agents continue to highlight buyers’ growing frustration with rising prices, but they see current levels largely supported by tight inventory conditions,” according to a monthly survey of real estate professionals by Credit Suisse.
Source: “Frothy, Yes, But Don’t Call it a Housing Bubble,” CNBC (Sept. 15, 2015)
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Source: Florida Realtors Feed

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