Bubble? Redfin Says No, and Maybe

By Dave Fratello | April 15th, 2013

Is the frenzied real estate atmosphere we're seeing almost everywhere today inflating a new bubble?

We liked seeing that Redfin, a consumer-friendly real estate firm if there is one, took on that question with some nerdy – but accessible – analysis. (Click here for Redfin's report.)

Redfin's conclusion: Mostly no bubble, but maybe a "mini-bubble" in some markets. Otherwise, the elements that overinflated the last bubble are absent.

Instead, Redfin sees a more classic supply/demand imbalance driving prices up. They don't see the same kinds of off-kilter factors breaking home values away from fundamentals as we saw last round. They even summarize their take in this handy chart:

So buyers are more real, credit is reasonable or tight – if cheap – and the main things Redfin focuses on is good ol' supply and demand.

The report says "There’s no doubt that this market feels similar in many ways to the bubble of 2005 and 2006, but a real estate bubble is more than stiff competition among buyers and rapidly rising prices."

Here in MB we can certainly appreciate the basic points: Low inventory is creating stiff competition. Prices appear to be rapidly rising.

And we're seeing same-house sales begin to routinely hit 2007 or 2006 prices, basically peak-bubble prices... and that, in the first full year of this new, er, maybe-bubble.

Redfin says from its big-picture perspective that neither trend (low inventory everywhere, rapid price rises) is "sustainable." More inventory will emerge and price gains will calm. They think.

Over at the Economist earlier this year, they took on the question of whether a new bubble was inflating. (See "The return of the bubble?" from January.) While views reported in the article varied, we got hung up on this passage:

[I]t's possible that the coastal markets that nurtured the last bubble may help inflate a new one. Yet supply may be less tight in those places this time around. On the one hand, many homeowners may use the increase in market liquidity to exit from mortgage contracts taken on during the last boom, and possibly from homeownership altogether, providing a flood of "shadow inventory" that holds prices down. On the other hand, coastal markets may be more willing than normal to respond to higher demand with increased supply.

What they're trying to say is that markets like MB's may get too hot, too quick, but we'll inspire a whole bunch of new sellers just by having a hot market, and this will calm things down.

That's almost a testable hypothesis. Let's track it this year and into the future.


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