So when is this speculation going to cause the market to pop? That question seemed much easier to answer before Katrina to answer, but Katrina has definitely changed the real estate landscape.
Even some of the biggest bubble busters believe that the market could continue some of its frenzied pace for another year or two, as long as rates don't spike. While rates did appear to be on the rise, they are now at the lowest rate in two months and mortgage applications are on the rise.
Certainly immigration is almost certain to continue to drive demand, and as long as jobs and income growth continue, there is no reason to believe that home prices won't retain their value or even appreciate, many economists argue.
In some areas, there could
be a huge demand for housing, as Katrina survivors decide to
make permanent moves to different cities and states.
Nationwide, and especially in many hot markets, apartment
vacancies are falling and pushing rents higher. Los Angeles,
one of the most mentioned "bubble" markets,
currently has a very strong rental market. Since rising
rents are the opposite of what would be expected in a
"bubble" market, one is left to question the word,
bubble.
The wild card is still interest rates and Katrina made that
care even more wild. Additionally, the real estate boom has been growing
jobs and consumer spending. In just the last two years
Americans have taken almost $400 billion in value from their
homes in a spending spree that has floated the economy.
What
happens if that ends?
Moreover, as home prices have shot higher, many buyers have
become quite creative financing their home purchases and
risk getting burned in the next few years. When this threat
is combined with higher rates, reduced mortgage activity,
and reduced home building, jobs could be lost.
Without really good news from somewhere else in the economy,
these factors are sure to eventually have an effect on home
prices. Ultimately, whether the real estate market just
rusts a bit, or busts, has not yet been determined.
