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Talk of a housing bubble is beginning to crop up as home prices have appreciated at a rapid pace this year. This is understandable since the appreciation of residential real estate is well above historic annual averages. According to the\u00a0Federal Housing Finance Agency<\/em>\u00a0(FHFA), annual\u00a0appreciation<\/a>\u00a0since 1991 has averaged 3.8%. Here are the latest 2020 appreciation numbers from three reliable sources:<\/p>\n It\u2019s easy to jump to the conclusion that house appreciation is out of control in today\u2019s market. However, we need to put these numbers into context first.<\/p>\n Following the housing crash, home values depreciated dramatically from 2007-2011. Values are still recovering from that unusually long period of falling prices. We must also realize that normal inflation has had an impact.<\/p>\n Bill McBride, the founder of the well-respected\u00a0Calculated Risk<\/em>\u00a0blog, recently summed it up\u00a0this way<\/a>:<\/p>\n \u201cIt has been over fourteen years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index, was reported as being 22.2% above the previous bubble peak. However, in real terms (adjusted for inflation), the National index is still about 2% below the bubble peak\u2026As an example, if a house price was $200,000 in January 2000, the price would be close to $291,000 today adjusted for inflation.\u201d<\/em><\/p><\/blockquote>\n The pandemic caused many households to reconsider whether their current home still fulfills their lifestyle. Many homeowners now want larger yards that are both separate and private.<\/p>\n Their needs on the inside of the home have changed too. People now want home offices, gyms, and living rooms well-suited for video conferencing. Barbara Ballinger, a freelance writer and the author of several books on real estate, recently\u00a0wrote<\/a>:<\/p>\n \u201cWhile homeowners continue to want their outdoor spaces that offer a safe retreat, that appeal has shifted into other parts of the home, coupling comfort with function. In other words, homeowners want amenities for work and leisure, and they plan to enjoy them long after the pandemic.\u201d<\/em><\/p><\/blockquote>\n At the same time, concerns about the pandemic have caused many homeowners to put their plans to sell on hold.\u00a0Realtor.com<\/em>\u00a0just released their November\u00a0Monthly Housing Market Trends Report<\/a>. It explains:<\/p>\n \u201cNationally, the inventory of homes for sale decreased 39.2% over the past year in November\u2026This amounted to 490,000 fewer homes for sale compared to November of last year.\u201d<\/em><\/p><\/blockquote>\n More people buying and fewer people selling has caused home prices to escalate. However, with a vaccine on the horizon, more homeowners will be putting their houses on the market. This will better balance supply with demand and slow down the rapid appreciation.<\/p>\n That\u2019s why major organizations in the housing industry are calling for much more moderate home appreciation next year. Here are the most recent forecasts for 2021:<\/p>\n\n
Inflation and the Comeback from the Housing Crash<\/strong><\/h4>\n
The COVID Impact on Home Prices<\/strong><\/h4>\n