Are We In Another Real Estate Bubble?

There was a short article written by Charles Hugh Smith and published at about another real estate bubble.  The author says "it's painfully obvious that real estate valuations are once again at asset-bubble extremes, one that's even bigger than the last RE bubble that popped in 2008 with devastating consequences to the global economy."

There is a lot of debate right now about real estate, even amongst libertarians.  I think most libertarians will agree that the housing market has certainly been distorted by government and Federal Reserve policies.

While I think that real estate prices are higher than they would be if the Fed weren't buying long-term government debt and mortgage-backed securities, I also think that it is kind of absurd to say that we are in a bigger real estate bubble now than what just popped a few years ago.

The chart shown in the article is misleading when used in reference to a possible housing bubble.  This is a chart of REITs, or real estate investment trusts.  These are investments in real estate.  Many of them are highly leveraged.  It should be no surprise that investors who bought a few years ago when housing prices were at the bottom are now doing quite well with their investments.  The profitability of REITs is quite different from actual housing prices.

The median price of a single-family residence in the U.S. is still well below the peak median price from about 6 years ago.  And you have to consider that we have had 6 years of inflation since then too, so in real terms the prices are even lower.

Of course, all real estate is local and some areas do have higher price points than what was seen at the peak of the housing bubble.  But on average in the U.S., prices are still lower, in both real terms and nominal terms.

Perhaps what we have now is the start of a new real estate bubble that will one day pop again.  But to say that it's bigger than 2008 at this point is just not accurate.  There are still a lot of people out there who are underwater on their mortgage.  If we were in another major bubble right now, then these people would have positive equity, which simply still isn't the case for millions of homeowners.

I can't say for certain one way or the other if real estate it going up or down or if we are in another bubble.  But at this point, there is no way that it is as bad as it was in 2007.