Though rapidly rising home prices and plummeting inventory levels may have caused concern among a number of economists, online real estate broker Redfin recently announced the nation is not in danger of seeing another drastic plunge in affordability similar to observed in 2008 when the national housing bubble burst.
The organization examined 19 of the nation's largest metropolitan areas, evaluating factors like mortgage records, housing prices, public property records and average incomes, then named the four markets which exhibit the most "bubbly" characteristics as well as the four that are least likely to develop a real estate bubble.
Washington D.C., Los Angeles, San Diego and San Francisco were reportedly identified as those areas that had the most bubbly traits and were considered at risk of developing a housing bubble. These cities all have seen home prices skyrocket as inventories decline, and in California, more than one-third of all listed houses are put under agreement within seven days - which has caused inventory levels to repeatedly hit new record lows each month. While average income levels may be appreciating in each region, they are not doing so at a pace relative to area property values - and that is what makes real estate professionals worried.
Redfin chief executive officer Glenn Kelman confirmed that bubbly areas are an ongoing concern, but offered a vote of confidence for the national housing market, saying the health of the America residential sector is good.
"Nationwide, we're not in a bubble," said Kelman. "Too many sales have been all-cash for people to get in over their heads, and sales volume is still nearly 40 percent below the 2005 peak. But markets like Washington D.C. and Los Angeles, where prices have increased more than 25 percent faster than incomes since 2000, could be vulnerable as interest rates increase over the next year. Just in the past few weeks, we've seen buyers using more aggressive loans, appraisals getting looser, and almost every sale turn into a bidding war."
Nation's capital city sees significant jump in housing prices
Redfin may have been led to place Washington D.C. at the top of its list for most bubbly areas because it recorded the largest change in its price to income ratio since the year 2000 - recently logging a reading 26 percent higher.
Reporting with data collected by a RealEstate Business Intelligence survey, the Washington Post announced that over the last 12 months the nation's capital city has seen its median sale price hike by $55,000 - 14 percent - to total $460,000, which is the highest amount ever exhibited by the District since the organization began regular surveys.