Revisiting the Housing Bubble
Over three years ago, I wrote an article about how I saw the housing bubble pop in Central Indiana. Considering the crazy market we now find ourselves in, I thought I would revisit the graph I made regarding this, and update it to see what things look like now (Q2 2016).
Without further adieu, here is the graph:
It's pretty easy to pick out the housing bubble of the '00s here. Values had pretty much bottomed out by the end of 2011. Since then, there has been a rather large correction to the positive.
However, if you look at the graph as a whole, median value today has returned to probably about where it would have been, had there been no housing crisis and had home values continued to rise naturally.
The large uptick in median value preceding the housing bubble was due in large part to very loose lending practices. Suddenly, everyone was buying - builders were happy to build and lenders were happy to lend. This caused many homes to be over-valued. A slew of new homeowners who were getting loans right up to what they could barely afford in the first place, saw affordability go out the window when - among other factors, their property taxes arrived that included not just assessed land, but final assessments on the homes they built (taxes in Indiana are in arrears, so many buyers could have been paying property taxes on land alone for more than a year. It's a big shock when you are escrowing $100/yr for property taxes and suddenly those taxes go up to $2,000/yr).
This led to foreclosures and short sales across the board, tanking home values along the way.
Today, these distressed homes only make up a fraction of what's for sale. Couple that with much tighter lending practices and fewer homeowners ready to make a move, and you see home values rising quickly once again.
Only this time, they are rising due to more traditional supply and demand forces. I believe we have finally gained back the value that had been lost by 2012 (Central Indiana homeowners had lost probably 10 years worth of appreciation).
What remains to be seen is if this current short-term trajectory, which is steeper than even the one preceding the housing crisis, is foreshadowing another bubble, or if that trajectory begins a shallower rise, and values once again revert back to their traditional 3-4% per year appreciation.
As it stands today, that will only happen when more home sellers decide to sell and the pendulum begins to swing back towards a balanced market.
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