Is a bubble forming?
Inadequate inventory is making it challenging to make a compelling case for it, even though prices are on a tear, according to Freddie Mac’s latest Insight. Any correction, if at all soon, will likely follow construction, which has been only gradually picking up.
“The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years,” says Sean Becketti, chief economist at Freddie Mac. “However, the housing sector is significantly out of balance. The incomplete recovery in residential construction following the crisis of the last decade has created several years of pent-up demand for household formation. What we can’t predict is how this imbalance will eventually be resolved. Will there be a gradual restoration of a normal balance between supply and demand? Alternatively, will the rate of home-building remain stubbornly low, exacerbating the income and wealth inequality that followed the Great Recession? Another bubble appears to be a less probable scenario, but not an impossible one.”
Source: Freddie Mac