Housing Bubble: Is There a New One Forming?

Are we in another Housing Bubble like the one of 2005-2006?

The housing market is recovering so nicely that it has caused some to wonder
whether a new housing bubble is forming.  Trulia revealed some great data on this point in a recent blog post. They explained that, even with the recent price increases, national home prices are still 7 percent undervalued.

Three reasons there will NOT be another bubble

Prices are determined by the ratio between supply and demand. Here are three reasons a bubble will be avoided.

1. Supply is beginning to increase. A lack of inventory is creating a market of multiple bids which has caused prices to rise. The National Association of Realtors (NAR), in their latest Existing Home Sales Report, revealed that the months’ supply of inventory has increased from 4.3 to 5.2 months since January.
2. Demand will decrease in certain demographics. For an example, investors have been a large part of the housing market over the last several years. As prices continue to rise, a certain percentage of these buyers will back off.
3. As mortgage rates increase, buyers will be able to afford less. The Mortgage Bankers Association, Fannie Mae and NAR have all projected an increase in mortgage rates over the next year. Buying power will decrease as borrowers can no longer afford the same price point as monthly payments will increase.

For these reasons the fear of a new housing bubble are currently unfounded.