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08.31.16

Letting the air out slowly: a lesson in bubbles.

The word “bubble” used to have a much more positive connotation. Kids chasing soapy spheres. Pillowy puffs of chewing gum. Transparent transportation for Glinda the Good Witch. Then came 2008. It was the year our country experienced a painful bursting of one of the most incredible – but seemingly inconspicuous – of these: the housing bubble.

After years of runaway residential construction, willy-nilly distribution of subprime mortgages, and astronomical home prices, the market could no longer be contained within the dreamy, razor-thin walls of the bubble. The resultant deafening pop helped throw the economy into a tailspin, and many Americans out of their homes.

So it stands to good reason that folks today would shudder at the notion that we are headed toward, or perhaps already in, another real estate bubble.

But it appears to be vastly different this time around. True, after hitting bottom in 2012, U.S. home prices are now within a single percent of their 2006 peak. However, the finger-pointing for the past four year rise is aimed not at faulty loan products, but at something that smacks more reliably of Econ 101: demand outpacing supply. 

The sound of prices hiking upward is music to the ears of homeowners looking to list or simply gain equity. And though amid this optimism is a healthy skepticism regarding the market’s ability to sustain a new bubble, experts forecast a kinder, gentler eventual release. As homebuilders more prudently approach average construction levels and more homeowners release properties to the resale market, prices will teeter to supply’s totter. And as more Americans put off buying that first home in favor of renting – because they are either unwilling or unable to fork over soaring down payments – home prices will inevitably slow their ascent.

Like a child who overblows a balloon, and wails at the unexpected boom, surely we are wise enough to not risk that kind of rupture again. Surely.