Is the housing market out of the woods or is another bubble forming?

The U.S. housing market is making gains when tradtional wisdom says it shouldn't be.  How is this possible if other global economies face dire straits and markets fluctuate so volatily daily?  I remember exactly where I was in Septmember 2008 when the economic market crashed.  I can recall telling a friend of mine, who was vested heavily in the stock market and real estate, that this will be the equivelant of our 1930's "Great depression.  I predicted then and have been proven right thus far that it would be 2017/2018 before we fully recovered.  

It's already been 5 years since then and the U.S. real estate and housing market continues to recover and make impressive gains.  New home sales have surged 38% since last year hitting a five year high in June.  If the outlook for 2013 and onward could be summed up in a phrase it would go something like this:  Inventory is shrinking, real estate activity is surging and prices are trending upward.  

So what do you need to know?

Are we in a housing bubble?

I'm still on the fence about this one, however, the numbers don't lie so for right now I'd have to say no.  Prices across 20 major metropolitan U.S. cities are 12% higher in the first quarter this year over last year.  The last time we saw these types of numbers was during the last bubble in the early 2000's, hence why I'm on the fence about the "bubble" question.  Experts and economists are quick to cite that prices are still comparitviely low compared to then, with most prices being under valued across the entire country. According to Corelogic and Altos research, real estate will increase 6% over last year (2012).  Based on these numbers we're looking at 12% year over year.  This number is staggering and almost unbelievable given all the other outside influences going on in the economy.  It won't last though, as inventory increases and mortgage rates rise (and they will rise, we'll cover that shortly), the growth will remain postive but will taper in the next several years

Shortsales are rising while foreclosures are in declining

RealtyTrac reports that 800,000 had some type of foreclosure proceedings against them in the U.S. in the first half of 2013.  This is down 19% from the second half of 2012 and 23% from the preceeding 6 months prior to then.  These numbers represent the lowest amount of foreclosures since 2006.  Crazy right?  

In the first half of 2013 short sales--nationwide--rose 79%, due to the governments easing of rules and the market adjusting to the short sale process.

Growing inventory coming to the Market?

Just this past June there were 7% less homes for sale than the year prior this is according to realtor.com.  While the inventory has been shrinking it will and must flatten out, eventually beginning to rise again.  Some believe that that has already begun to happen while others think there could be a shortage of houses for the next three years.  I'm with the latter and think there are too many variables influencing our industry, namely the Federal Government.  Which leads us into the next topic.

What's going to happen with interest rates?

Mortgage rates have been rising over the past several months and most economists believe this trend will continue. Meaning borrowing is becoming more expensive, but housing won't become "unaffordable" anytime soon.  Still, buying is cheaper than renting and will remain so until interest rates reach about 10.5%--which I believe will happen--a level we haven't seen since 1990.  Rising rates though may not be a bad thing necessarily, it'll open up tight mortgage lending practices and will cause the refinancing business to dry up essentially forcing underwriters to qualify more buyers.

I believe that housing prices will continue to rise, however, as agents we must keep an eye on certain key factors.  Inventory, interest rates and the big one......inflation.  Given the amount of money the Federal Reserve is pumping into the economy, $85 Billion dollars a month, much of which is aimed at housing, they will eventually halt the practice all together and when they do the money pumped in will have to be sucked out, there's only one way of doing this and that's by raising interest rates.  My predicition is the housing industry will grow, but interest rates will hit double digits in the not too distant future.