Freddie Mac Weighs In On Housing Bubble

Well, after much doom and gloom and mixed signals, Freddie Mac's recent take on the housing market is quite soothing. According to its January 2006 report, "Anecdotal evidence of a decline in housing market activity has led some to speculate that a crash in home prices is inevitable." However, Freddie Mac goes on to say that countering this is the possibility that the increase in housing prices is being driven by economic fundamentals. In other words, increasing income, employment, and population growth coupled with limited land, low interest rates, and construction cost increases (attributable in part to the many natural disasters that have plagued the country over the last few years) have quite naturally driven prices higher. Based on this scenario, Freddie says we can expect that any housing price decline will also be driven by fundamentals: as a result, markets will soften rather than crash and the biggest impacts will only show up in some local markets or market segments like condos or high-end homes.

Don't you feel better?

Of course, if you are in one of the segments or markets that decline, the fact that the overall market is okay won't be a great comfort. But it should be: as long as the overall market doesn't "crash", the chances that your home will regain its appreciation in a reasonable time remains.

Let's hope our fundamentals are in good shape.

Michael

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