Builder
What is a housing bubble and is the U.S. facing one? The Urban Institute’s Housing Finance Policy Center has just released a new blog that ranks the 37 largest metropolitan areas on a “bubble watch” scale. Cities in California, Washington state and Florida dominate the top of the scale, along with parts of Arizona, Texas, Michigan and Nevada.
In their essay, Bing Bai and Ed Golding explain how to properly identify the existence of a housing bubble and the importance of home price changes and income and job growth. They conclude that national numbers show little cause for concern: Despite recent increases, house prices remain affordable by historical standards, suggesting that home prices are tracking a broader economic expansion.
Contrary to what the article somewhat subtly suggests, the Phoenix’s housing market is clearly not in an inflating “bubble”. Yes- home prices have gone up from the distressed lows of post-bubble years 2010, 2011, and 2012, but homes remain affordable—more affordable than most neighboring major metropolitan areas and more affordable than the nation, on average. Consider that, per the National Association of Home Builders / Wells Fargo Housing Opportunity Index, more 66% of households in the Metro Phoenix Area could afford to purchase a home in the second quarter 2017. In many nearby California Metros, the percentage drops below 25%. In the highlighted better-ranking Metro Las Vegas Area, fewer households could afford to purchase a home in the second quarter than in Phoenix, and the average was even lower, below 60% for the nation.
The Metro Phoenix Area is undersupplied, and appreciation has been low. New homes have hardly appreciation in the last few years, despite skyrocketing costs and healthy demand. Little resale supply exists today. The suggestion that the Metro Phoenix Area should be on a housing bubble watchlist is absurd to this analyst.
