FORT WORTH (CBSDFW) – With the skyrocketing prices of real estate in North Texas and homes selling faster than they can get on the market, many are asking if what we are seeing in DFW is a bubble effect.
Bankrate.com describes a bubble as the effect when the price of housing rises at a rapid pace, driven by an increase in demand, limited supply and emotional buying. The phenomenon is called a bubble because at some point it will burst.
In other words, prices and home values will eventually come crashing down far below what they are being bought for.
Dr. Jim Gaines, a research economist at Texas A&M’s Real Estate Research Center said, “Economists don’t know bubble’s until after the fact. You don’t know when you are in it.”
As for what is happening in North Texas, he says he doesn’t believe the demand and the market to be artificially inflated.
“Right now we think it is more on the order of real demand,” Dr. Gaines added. “The reason I say that is. It’s based on population growth. It’s based on jobs and income levels and it’s also based on the fact that the lenders and mortgage community have tightened standards, not loosened them.”
As a result, he described the current trend saying, “It’s still following reasonably sound economics other than the fact that the demand is so much greater than the supply.”
While the market remains historically hot and demand is far outpacing the supply, Dr. Gaines doesn’t believe this will last forever. Instead, he thinks as the cost of materials and construction stabilizes and interest rates continue to go up the market will self-normalize.
“Economic theory always tells us that there is a reversion to norm. Anytime we get away from the norm we revert to it,” he said.