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Housing Bubble Bursts, But Not Everywhere

NEW YORK (MainStreet) — Back in the heady days of housing bubble excess, stubborn renters who refused to buy until prices dropped had to face down certified experts who insisted, “15% annual gains in housing costs are economically sustainable, not bubbly at all. Buy now or be priced out forever!”

Today, in hindsight, experts agree the last decade’s enormous rise in housing prices was a bubble after all; now, instead of “is or isn’t there a housing bubble?” the new debate is, “Has the bubble finished deflating?” Search online for the phrase “home prices have stopped falling” and you’ll find people saying calling an end to the trend as far back as summer 2008, through 2009, and through 2010 as well.

Now, early in 2011, the great debate revolves around whether or not housing will “recover” (read: rise in price).

I optimistically expect the market will make a full recovery in time – but then, as one of the stubborn renters who sat the bubble out, I define “housing market recovery” as “prices drop back to where I can comfortably afford one.” To determine whether I can, I still rely on the old pre-bubble conventional wisdom: “Save 20% down, and you can afford a mortgage loan equal to three years’ salary.” That kept me out of trouble around 2005: regardless of how low interest rates dropped, there was no way I was going to borrow five or six years’ pre-tax pay for a starter home.

Walter Molony, the senior public affairs specialist for the National Association of Realtors, said “In the 1970s, buyers would spend two-and-a-half to three times their [annual] income … during the boom, maybe six times income.”

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