Is The Housing Bubble Going to Come Back?

Forbes recently published a piece that questions whether the recovery of the housing market is leading us toward another bubble. Contributor Karl Smith makes some good points, but see what you think…

Cullen Roche is worried that the trajectory of housing prices might deviate from what practical assumptions would predict

Real estate returns are not rocket science.  Because they’re such a huge portion of the consumer balance sheet they tend to be tied very closely to wage growth.  Wage growth, by definition, is very closely tied to the rate of inflation.  That explains why the long-term historical return of real estate is roughly in-line with the rate of inflation.  But this survey from Zillow shows that real estate “investors” are probably still too optimistic.

I can see why these assumptions are attractive, but they are not quite what drops out of macroeconomic analysis.

Fundamental Upward Pressure of Prices

Wage growth, per se, shouldn’t drive housing prices. What we might expect is that wage growth drives rents and rents drive housing prices.

The wage-rent relationship, however, is not an iron law.

Matt Yglesias and Ryan Avent are famous for pointing out that rents – and hence housing prices – could be much lower in coastal cities if residents would abandon restrictive zoning laws. For example, Dallas and Philadelphia have roughly the same median household income, but home prices in Philly are much higher than in Dallas.

In general, if a fundamental driver – regulation, technology, preference – causes rents to eat up a higher portion of folks pay checks then rents and home prices will be higher.

To some extent the national rise in home prices is due to both technology and preferences driving more people to want to live in high rent areas like the Northeast Corridor.

Those same forces are leading some people to want to live in Houston, Austin and Raleigh-Durham, but because of looser regulation that simply translates into booming housing supply and a booming population rather than higher prices.

In addition, the relationship between rent and housing prices depends on interest rates – both the real portion and expected inflation. A house is like a utility company. Instead of providing power services, it provides shelter services and keeps you from having to pay rent.

Many finance folks are familiar with the rule-of-thumb that utilities tend to trade like bonds. Higher interest rates lead to lower bond and utility stock prices. Lower interest rates lead to higher bond and utility stock prices.

This is because – like a house – you are receiving a fixed stream of services over a long period of time.

Though this framing is kinda technical, most of these factors can be summed up in a really straightforward comparison: monthly rent vs. monthly mortgage payment for similar homes.

When the market is balanced the monthly mortgage payment should be slightly higher than the rental payment because 1) Mortgages get a tax break and 2) Traditional rate mortgages offer you the stability of a fixed payment.

Adjustable rate mortgages  (ARM) need to produce a payment close to or even below rent to be a good buy. That’s because you lose the security of a fixed payment and depending on the terms of the ARM you may actually be facing more payment volatility than with renting.

Trulia crunches the numbers and it looks like under their baseline assumptions its cheaper to buy than to rent in every one of the top 100 metropolitan areas in the United States.

In traditional hotspots like the San Francisco Bay area, New York City and Orange County, CA, the discount is low. Still this is a recipe for fundamentals house price appreciation.

Bubble Territory

If housing prices merely stabilized into a sustainable equilibrium with rents then the future probably wouldn’t be too dramatic. We would see a rapid shoot-up in home prices now, followed by a long period of little to no price growth as the Fed raised interest rates.

Rents would still be going up and monthly mortgage payments would rise with them to maintain equilbrium. However, mortgages payments would be rising because interest rates were rising, not because home prices were rising.

Eventually, the Fed would stop raising rates and home prices would start to drift higher and eventually home price growth would converge to rent growth.

However, there is an ever increasing chance that this is not the future we are facing. Some time in the near future it is very likely that credit standards for homebuyers will fall. This will allow homebuyers to make larger offers and it will allow young people to buy a home even when they lack a down payment.

This rapid increase in the number of buyers and their purchasing power will likely drive home prices into a bubble. Likely not as large as 2005, but it’s not out of the question that the bubble could be even larger.

We might think – “didn’t lenders learn their lesson?” Or perhaps, “see this is what we get when we create moral hazard.”

Neither of these are correct. A perfectly competitive market in mortgage lending could not help but go into bubble. To the extent our lenders avoid it, it is because regulations and/or tacit collusion among major players, prevents the competitive equilibrium from being reached.

On the most abstract level this is because liquidity earns real rents, those rents are distilled by a perfectly competitive market and ultimately accrue to the owners of the irreproducible factors of production. In this case the owners of land located in the inner residential rings of cities. That is, for the most part, homeowners.

On a more tangible level, the lenders will be encouraged to loosen standards because if any lender loosens standards then he or she will gain market share and increase asset volatility that makes all loans riskier.

If a lender tries to play it safe then she will still get screwed by the fact that any loan she makes will be to a buyer who is paying market price, which is bubble inflated. Yet, she will be doubly screwed by the fact that she is losing market share and thus not even making a lot of money on the upside of the bubble.

So she is pushed to lower standards as well.

This is amplified by the fact that the actual consequences she faces as a decision maker will be harsher the more atypical her choices are. If she goes with the flow she probably will not be punished when everything goes bad. If she refuses to go along with the flow then she will be punished for making low returns while everyone else is profiting from the bubble.

Given all of that it will be very hard for her to resist the pressure to lower standards. Hence, we should predict that a competitive market will see standards go down.

As standards go down, buyers rush in with more buying power and we enter a new bubble phase. To my knowledge neither the government, the lending industry nor we as a society have done anything that promises to prevent this.

Choosing an Interior Paint Scheme

b2b_jan13_big_6One of the easiest and most cost-effective ways to boost a home’s value is repainting interior walls. A fresh coat of paint in a soothing neutral color can immediately transform the look of a home, making it easier for prospective buyers to imagine themselves moving right in.

The color test.
Before you commit to a color, paint a white poster board with the sample color and tape it to a wall so you can observe the sample in a variety of lighting conditions. Remember that dark colors will make a room look smaller, and light ones will make it appear larger.

Color palettes.
Sellers don’t need to paint every wall the same color, but a whole-house color scheme in pleasing neutral tones will boost the home’s value without scaring off potential buyers. Make sure all colors work together well, especially considering adjacent rooms as selections are made.

  • Neutrals. When you’re selling a home, neutrals are the best bet. They make it easier for potential buyers to picture themselves-and their belongings-in the house. Soft, warm neutrals can also create a soothing effect.
  • Bold colors. Experimenting with bold colors can be fun, but colors that are too bright or bold can turn off potential buyers. The hot pink wall in the dining room will have to go.
  • Warm colors. Warm colors (think neutrals with undertones of reds or oranges) provide a cozy atmosphere.
  • Cool colors. Cool colors are calming. Cool neutrals can produce a relaxing effect, but be careful to avoid stark whites. Many people mistake white for a neutral color, but white walls are often harsh and bright.

The time and attention to paint color choices can pay off in a fresh coat of “sold!”


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Housing Market Surge May Wane in Time

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The outlook for housing continues to remain positive, with economists predicting a sustainability that may last for years. But don’t expect housing to pull all of the nation’s economic weight going forward, as the housing recovery, may only be temporarily accelerated.

In an updated economic outlook from the government-sponsored enterprise, Fannie Mae, chief economist Doug Duncan said,”On balance, we see some improvement in our outlook for growth this year, primarily because of continued strength in the housing market and the kicking the can down the road as remaining fiscal issues continue to unfold.”

In July last year, HousingWire reported that the housing recovery should help buoy consumer confidence and provide a mild lift to second half economic output. The news from Fannie adds to the growing body of evidence that housing will continue to be an economic bright spot for the nation’s future financial health.

According to Fannie Mae’s housing forecast report from March 2012, in the first quarter of 2013, first-time home purchases were at 117 billion, but it is expected to drastically grow and reach 179 billion in the second quarter of 2013 and 192 billions in the second quarter of 2014.

So, yes, mortgage originations will remain a bright spot. But an economic saviour? No.

However, mortgage refinance market share is expected to drop dramatically in the coming years, making up only 52% of mortgage originations in the fourth quarter of 2013 and 33% in the fourth quarter of 2014, the report states.

First-time home purchases attempt to pick up the slack in refinances, but even with a expected growth, mortgage originations are predicted to drop.

“We expect economic growth to come in at 2.1% in 2013, as strength in the housing market and business investment will help to offset fiscal tightening,” said an economic and strategic report from Fannie Mae.  “Tax increases will restrain activity in the first half of the year, but we expect growth to pick up in the second half.”

It explained, “As we mentioned in last month’s commentary, several factors could cause growth to come in faster than we project, including stronger home price appreciation, which could result in a virtuous cycle that feeds into more favorable housing activity, consumer sentiment, and consumer spending.”




Study: Buying a Home Is 44% Cheaper Than Renting

shutterstock_78970252The recent rises in asking prices has been outpacing the increases in rents, but home buying still may make more financial sense, a new study shows. Owning a house was found to be 44 percent cheaper than renting, according to the latest study from Trulia that compared the costs of the two.

The study found that owning is less than half the cost of renting in 46 of the 100 largest metros. “Buying a home is cheaper than renting in all of the 100 largest metro areas,” according to Trulia.

Falling mortgage rates are helping to keep home buying more affordable. But depending on where you live, the difference between owning versus renting can be big or small. For example, in San Francisco, home ownership was found to be 19 percent cheaper than renting, whereas in Detroit owning a house is 70 percent cheaper than renting.

The following are places where home purchases exceed renting by the highest amounts:

  • Detroit
  • Dayton, Ohio
  • Gary, Ind.
  • Cleveland, Ohio
  • Warren-Troy-Farmington Hills, Mich.
  • Toledo, Ohio
  • Memphis, Tenn.-Miss.-Ark.
  • Kansas City, Mo.-Kan.
  • Birmingham, Ala.
  • Indianapolis

If you or someone you know is considering buying a home, contact us for more information on the local housing market. Better information leads to better decisions. Visit us at


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New Home Staging Statistics Show Staged Houses Selling Faster

beforeafterThe International Association of Home Staging Professionals® (IAHSP®) recently released new statistics showing that homes Staged by Accredited Staging Professionals® (ASP®) and Accredited Staging Professional Masters® (ASPM®) sell within 23 days. Homes for sale in a non-staged condition nationally average 130 days on the market. When comparing ASP®/ASPM® Staged homes to non-Staged homes listed for sale, the homes that are Staged sell on average 83% faster.
Sellers everywhere should be excited about the new Staging statistics from IAHSP® and®. The new study revealing that homes listed for sale in an ASP® Staged condition sell within 23 days, proves that ASP® Staged homes are now selling 26% faster than a previous IAHSP®/® survey that showed a 29-day selling average.

The statistics are based upon a survey conducted by IAHSP® and® of over 1,000 homes (62% Vacant, 38% occupied) across the Continental US and Canada prepared for sale by ASPs® and ASPMs® in today’s market.

“The Investment in ASP® Staging your home will always be less than a price reduction on your home,” said Barb Schwarz, The Creator of Home Staging®, CEO of®, and founder and Chairwoman of IAHSP®.

Homes that are prepared for sale by ASP®/ASPM® trained professionals sell faster and avoid a long period of time on the market with a succession of price reductions. And during the course of a listing, non-Staged homes accumulate carrying costs for the seller.

To learn more about ASP® and ASPM® training – or to register for an upcoming ASP® course in your area or the convenient training webinar – visit, email, or call 800-392-7161.

To learn more about IAHSP® visit

Monthly Cleaning Tips

Spring is here and you know what that means– time to spring clean!

The experts at Merry Maids have some great tips on cleaning. Keep your home clean with some easy tasks you need to tackle once a month explained in this helpful video.

Check back next week for another helpful video on annual cleaning tips!

To watch the complete series, visit:

Spring Checklist for Homeowners

sunny_shutterstock_97614617_7Spring is here finally and with it some chores, right? We all think of spring cleaning and spring planting, but there’s other tasks every homeowner ought to be doing as well. Here’s a handy list to get you started:

  • Check and test your smoke and carbon monoxide detectors and change the batteries.
  • Make sure your first aid kit is up to date and fully stocked.
  • Replace or clean your furnace filter.
  • Check for winter damage to your roof and gutters.
  • Clean up winter debris from your lawn. Rake, de-thatch and aerate the lawn.
  • Test your outdoor lights and replace any bulbs that have broken or burned out.
  • Wash your windows and inspect your screens for damage like holes or tears.





Is Hotlanta’s Housing Market As Sizzling As They Say?


A recent article asks if Atlanta’s housing market really has recovered. At Petersen Partners, we’ve already seen a very active spring selling season. See what Curbed National thinks.

In the span of a few months, the headlines would have us believe Atlanta’s housing market has done a total about-face from a couple of years ago. From an inventory swamp to desert. Anecdotal evidence would seem to support the news: From Roswell to the Old Fourth Ward, we’ve personally heard tales of frustrated would-be buyers who were outbid on homes they really wanted. A recent open house in East Atlanta, we’re told, drew a stampede of house hunters — and several above-ask offers before noon. So has the metro Atlanta job market been nourished back to health that much? Has homeownership regained its idyllic appeal? Or is the breakneck recovery indicative of other forces at play?

The website reports that homes in the Atlanta market, where the supply is suddenly tight, are selling in less than 60 days — below the national average of 98 days. USA Today pored over the website’s data and reported the Phoenix market — where prices have swelled 23 percent — has been helped by strong investor demand for homes. “Atlanta is now seeing a surge of investors, too, as is Orlando, local Realtors say,” the newspaper reported. Of course, the robust, fast-moving markets mean buyers and sellers are likely to see more multiple offers and fewer price reductions, one expert told USA Today.

Please, weigh in with your recent home-buying or selling experiences. And share your theories on what’s driving Atlanta’s newfound housing demand.


The Easiest Perennials to Grow

100338956.jpg.rendition.largest.pSpring is here and it’s time to play in the dirt again. Looking to brighten up your flower beds without having to do much work? Keep your garden blooming all season with Better Homes and Gardens Magazine’s list of easy growing, high impact perennials that come back year after year. Every year a group of plant breeders, nurserymen, and garden writers select a top-performing perennial as Perennial of the Year. Here are their picks since 1990; these plants are sure to be winners in your garden, too! Want flowers you can bring indoors? Check out their list of the best perennials for cutting. Brighten your home, as well as your garden, with these cut-and-come-back perennial flowers. And with their list of the six best easy-care perrenials, you can add a profusion of colorful flowers that come back every year with these no-fuss plants you essentially just plant and walk away.

Cobb Ranks Among Healthiest GA Counties

Marietta Daily Journal-  For the second year in a row, Cobb County is ranked sixth in the state for its level of healthiness, but health officials warn that the lofty ranking doesn’t mean there is not still work to be done.

A study by the Robert Wood Johnson Foundation and the University of Wisconsin Population Health Institute.ranks Cobb sixth behind Forsyth, Fayette, Oconee, Gwinnett and Cherokee counties. The other Top 10 counties are Columbia, Morgan, Coweta and Rockdale.

Rankings are based on a number of indicators, including the percentage of residents who smoke, are obese, have diabetes, do or don’t exercise, can or cannot afford health insurance, live near recreational areas or parks and are employed. Overall death rates and median household incomes also are considered.

All of the top six healthy counties are in the top tier of Georgia counties in terms of wealth.

Kristin Caudell, WellStar’s director of corporate and community health, said she believes Cobb is ranked highly because there are people locally who have taken time to educate themselves on living healthy lifestyles.

“We at WellStar want to be a strong support for a healthy community,” she said. “We really want to empower people with the knowledge so they can take action through prevention with their wellness.”

Among the areas in which Cobb continues to improve are the number of premature deaths and the adult smoking rate.

Joy Wells, director of epidemiology and infectious diseases at Cobb & Douglas Public Health, attributes a strong healthcare network, medical innovations and good individual awareness for positive medical practices regarding premature deaths.

She said tobacco education about the risks of smoking and the Georgia Smoke Free Air Act also has helped reduce smoking numbers.

Can Cobb do better than sixth?

Cobb has dropped in the rankings since the state department began its study four years ago. It was fourth in 2010 and fifth in 2011.

Caudell, Wells and Lisa Crossman, Cobb & Douglas Public Health’s director of the Center for Clinical and Prevention Services, couldn’t say why Cobb had seen its ranking drop or why a larger county like Gwinnett might rank higher.

Wells agreed there is still work to do in Cobb.

“We are well below the national target for many health indicators, and we have a large population of residents who still do not have access to regular primary health care,” she said.

Her department also continues to be worried about some of the key health statistics for youth and minority populations.

“None of it is really an easy fix, but the biggest problem hands down is obesity,” Caudell said.

She said being overweight can affect every aspect of a person’s health, from heart problems and diabetes to cancer.

“Childhood obesity has also become such a large problem,” she said. “We are trying to partner with different agencies to try and make a difference in that area.”

Crossman said other risky health lifestyle behaviors like tobacco, alcohol and other drug use, particularly in youth, injuries from traffic accidents and sexually transmitted diseases, also continue to be concerning in Cobb.

Lack of access to affordable healthcare

“Although we have a very strong network for healthcare in our community, we still have large pockets of residents who do not have access to regular, quality primary healthcare,” Crossman said.

She said this means that prevention and early detection efforts are not being accessed, and many residents are waiting until health issues become catastrophic before they seek care. Their only contact with a doctor is at the hospital emergency room.

“This is both expensive and traumatic for the individual and our community,” she said.

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What’s happening in the rest of the state?

Unlike metro Atlanta counties like Cobb, Fulton, Gwinnett, Clayton, Henry or DeKalb, a majority of the lower-ranking counties are located in central or south Georgia, where poverty tends to be more widespread.

Caudell explained why this is the case.

“The biggest challenge for some of the more rural areas is the access to healthy food,” she said. “Their economic level being lower makes it less affordable for them to make healthier food choices.”

Caudell said resources for educational tools to make better health choices may be more limited in those areas as well.