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Pandora's Bubble?

This spring’s low inventory, while great for sellers in the short term- opened up a “Pandora’s Box.” The result of which could deliver another real estate bubble with speculative size and duration. It is of concern that the recent rapid increase in home valuation is a false one, run up by the disparity between supply and demand.

The more sellers coming back into the market, however, would provide balance, and thereby alleviate the threat of the bubble increasing in critical mass. But if inventory remains low through the fall market this condition could fester.

Galvanized by low rates and pent up buyer motivation the stage was set for bidding wars and sales at over asking prices. This lack of inventory, buyer competition and subsequent higher sales prices is the cocktail that resulted in this market’s inflated valuations hangover.

In a healthy, balanced market there exists a six month supply of housing stock (before it’s depleted). In March this number was around 4%. As more properties come to market this imbalance will even out and the risk of the “hyper valuation bubble” will dissipate.