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Anyone else out there in the state of Rational-sylvania getting just the teensy, weensiest bit nervous that we are seeing the formation of a new real-estate “bubble”?
The data seem to support it. Most concerning: Home prices at the national level are rising at four times the rate of income growth.
Quoting that noted business analyst, Scooby Doo: “R’uh-r’oh.” In a phrase that policy wonks would be more comfortable with, that situation is not “sustainable.”
On the local front, you can see the outlines of an emerging bubble, as well. Prices are going up too far, too fast, even when taking into account the fact that ultra-low interest rates will help lower monthly payments.
(Wait ’til you get those eye-popping local tax bills, however, which are surely going to be adjusted ever skyward next year once 2021 assessments come out. Local-government officials these days publicly cry crocodile tears and plead poverty, but privately salivate at how they’re going to be able to stick it to homeowners next year, while sanctimoniously proclaiming they are not raising tax rates.)
Human psychology is adding to the combustible situation; people believe if they don’t get into the market in a hurry, they’ll be too late. Same thing happened in the last bubble some 15 years back, when those vying for houses could have taught piranhas a thing or two about feeding frenzies.
If history repeats itself, we again will be playing a nationwide game of “duck-duck-goose,” and when the music stops, a few (or far more than few) people are going to be left holding the bag with homes they can’t afford.
And if things REALLY repeat themselves, the nation will be tossed into another economic calamity in the process.
Perhaps the best thing to do is hope for the best while preparing for the worst. And if you are in the market for a home in the current environment, do not put yourself too far out on a limb. If past is prologue, that limb could well get sawed off.