Rising Home Sales Renew Bubble Fears

28 June 2013

Prices and sales of homes continued to increase in May renewing fears of a housing bubble. The fear might continue if the tight inventory situation is not remedied.

According to the National Association of Realtors, the home price increase is too fast and is coupled by only a handful of constructions to answer the decreasing supply of new homes.

The median price of homes soared 8 percent to $208,000 from the previous month. The month-to-month price fluctuations are not unusual but year-to-year records show an increase of 15 percent, a level last experienced during the summer of 2008.

The drop in foreclosures has also contributed to the increase in home prices. These homes sell at discount prices and accounted for 18 percent of the total home sales in May. This was less than the 25 percent from last year.

The boom years were characterized by easy credit and increased construction rate. However, the tight mortgage credit and shortages in home supply is currently driving prices. And with the sudden increase in mortgage rates, many more buyers are expected to enter the market to avoid getting priced out.