One Reason there is No New Big Rapids Real Estate Bubble

          The possibility that a Big Rapids real estate bubble might be forming again is a subject that draws everybody’s attention.   For all of us who went through the subprime mortgage mess and drop-off in Big Rapids real estate prices, the possibility that the current ongoing rebound might be evidence of another price bubble is a matter of serious concern.   For anyone who bought their home near the 2006 peak — then had to wait for a decade before its nominal market value returned — it was an unpleasant interlude.  Even if any ‘loss’ was actually only a paper abstraction, “My nerves!” could have been rattled aplenty.

          Whether you are a first-time homebuyer or someone who is plotting out the move to a next house, the main deciding factor will probably be simple necessity.   First-timers will do the math and deduce that it’s simply too costly to continue renting.   Existing homeowners will be motivated by the need for more living space (or less) — or see a financial path that makes possible a move to a more desirable neighborhood or school district.   But hanging over such major factors are the uncontrollable surrounding conditions, like the national and world economies.   And the presence — or absence — of a real estate bubble.

          Last week came an examination of the real estate rebound that at first looked like bad news, but actually convincingly scotched any Big Rapids real estate bubble concerns… at least for the next 17 years.   It appeared as an entry in The Wall Street Journal’s economics blog, wherein the author examined national measures of home prices (the S&P/Case-Shiller Index, NAR existing home sales report, CoreLogic’s Home Price Index) all of which pointed to the fact that “Home prices have been growing at a rate that some see as alarming…”  

          Why any such alarm bells needn’t be sounding for a while is due to a simple fact.   Yes, home prices may indeed be nearing or surpassing peak levels touched in early 2007; but, No — that does not a bubble make.

          The reason:   those steadily-rising price numbers don’t take inflation into account.

          Now, most everyone would agree that although inflation is an ever-present fact of life, lately it has been so tame as to be barely perceptible.  The rise in supermarket prices may have been noticeable on some aisles, but lately, more than offset by falling energy prices.   However, the cumulative effect of 10 years of inflation, tame or not, can make a big difference.   Today’s dollars aren’t what they used to be.  In fact, when inflation is taken into account, at the current rate of residential price appreciation, it will be 17 years before the old real estate ‘bubble’ levels are equaled.

          So as a practical matter, fears that a new Big Rapids real estate bubble is being inflated seem to be overinflated… because they aren’t inflated… (well, you know what I mean)!   As prices continue to strengthen at sustainable rates, the truth is, you can find a lot of good values on the Big Rapids market. 

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Terry Reeves

Terry Reeves

Real Estate Professional
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