Home prices rose again last year, and the housing market is starting off 2017 at a brisk clip.

According to S&P CoreLogic Case-Shiller data, which includes the 20 largest U.S. cities, home prices regained their 2007 peak late last year and increased 5.6 percent from November 2015 to November 2016 – the latest figure available. Zillow’s Home Value Index, which measures median home value nationwide, predicts its index will reach the 2007 level this spring. Zillow found that home values rose 6.8 percent last year and predicts a 3.5 percent uptick this year.

But could these impressive numbers actually be the precursor to a housing bubble?

“I think we can take the bubble off the table,” says Nela Richardson, chief economist for the real estate brokerage Redfin, which reported a 7 percent increase in sales prices from January 2016 to January 2017. “Demand is really strong. Inventory is still quite low. The market is really fast. None of that suggests a market that’s about to bubble over.”

[See: The 25 Most Desirable Places to Live in the U.S. in 2017.]

The continuing rise in home prices is led by basic economic forces: Demand exceeds supply in most cities, especially for entry-level housing. Plus, unemployment is low and wages have begun to increase, both strong economic fundamentals.

“We are absolutely not in a bubble,” says Ralph McLaughlin, chief economist for the real estate portal Trulia. “The economic definition of a bubble is when people are driving up prices only because they expect prices to increase.”

While economists don’t foresee a crash like the one we experienced in 2008, they do expect the increase of home values to slow, and values could even decline slightly in some areas.

“We are due for another recession,” McLaughlin says. “When that recession hits, prices are likely to flatten or decline.”

The biggest problem for the housing market in most cities is the lack of available homes to buy, especially in the lower price ranges that attract first-time homebuyers. The National Association of Realtors found that the number of homes for sale at the end of January was 7.1 percent lower than the number for sale a year ago, with only 3.6 months of inventory available. Six months of inventory is considered a balanced market.

“We’re seeing very strong demand in many housing markets and not a lot of supply,” says Svenja Gudell, chief economist for Zillow. “Inventory remains a big issue.”

The lack of inventory has made it difficult for those who actually want to secure a home.

“At least in the coastal markets, it’s a very competitive market right now,” Gudell says. “They might put in five different offers and won’t get a home from any of those offers.”

Lack of inventory is also discouraging move-up buyers who might otherwise trade in their starter homes for something larger. But people who bought homes a decade ago may still be underwater or not have much equity to put toward a bigger house.

“It makes it more difficult for a household to trade up to the next level,” McLaughlin says. “You might just stay put and renovate your existing home.”

[Read: Is the Seller's Housing Market Finally Over?]

Another factor reducing inventory is institutional investors who bought up quantities of homes during the foreclosure crisis are holding on to them because high rents make them a good investment. But as home values overtake rents, some of those homes may come to market, McLaughlin says. Rents outpaced home prices in 2014 and 2015, but they are now starting to moderate. “If that keeps pace, we should start to see investors sell their houses,” he says.

Housing inventory is also low because new construction continues to lag, particularly construction of starter homes. That’s partly because of the high cost of land, but it's also because of a lack of construction workers. Little development activity during the recession caused many construction workers to leave the industry or change their specialization. Anti-immigrant measures could make the labor supply even tighter.

Mortgage rates are expected to rise this year, although rates are likely to fluctuate and likely won’t significantly affect demand. “We really don’t think interest rates are much cause of concern for homebuyers,” McLaughlin says. “It may dampen the rate of appreciation, but we don’t think so.”

In cities with the highest pricesSan Francisco, Miami, Boston, New York and San Jose, California – the rate of appreciation on home values has already started to slow, and other cities may follow. “In most parts of the country, housing is still very affordable,” McLaughlin says. “In those markets, we don’t think affordability is going to dampen price increases at all.”

What does this mean if you’re thinking of buying or selling? In general, your personal financial situation is still the most important factor. If you have a stable job, expect to live in the same area for at least five years and have money for a down payment, this is probably a good time to buy. If not, you shouldn’t let rising prices force you into a hasty decision. “I never think rushing to get a home is a good idea,” Gudell says.

[Read: Is Buying a Home Through a Short Sale Ever a Good Idea?]

For sellers, your chance of timing your sale at the exact peak is slim, and when that will be depends on where you live. But if you have reasons to sell your house beyond the strength or weakness of the housing market, now is not a bad time.

“If you’re ready, it’s probably a good time to sell,” Gudell says. “You’re not gaining that much by holding on to the house.”

Tags: real estate, money, housing, housing market, home prices, economy


Teresa Mears writes about personal finance, real estate and retirement for U.S. News and other publications. She was previously the real estate blogger for MSN Money and worked as the Home & Design editor for The Miami Herald. During her journalism career, she worked on coverage of immigration, religion, national and international news and local news, serving on the staffs of The Miami Herald, The Los Angeles Times and the St. Petersburg Times. She has also been a contributor for The New York Times and The Boston Globe, among other publications. She publishes Living on the Cheap and Miami on the Cheap. Follow her on Twitter @TeresaMears.

Recommended Articles

7 Bathroom Remodel Ideas on a Budget

Devon Thorsby | June 21, 2019

These renovation options can make your bathroom feel new again.

The Best Places to Live for Families

Devon Thorsby | June 19, 2019

These metro areas meet the most important criteria for families looking to relocate.

Should You Buy a Fixer-Upper?

Steven Gottlieb | June 18, 2019

Buying a home that requires a major renovation may take more coordination than you think. Here are four questions to ask yourself before taking the plunge.

7 Kitchen Remodel Ideas on a Budget

Devon Thorsby | June 14, 2019

Transform your kitchen with projects that won't require you take out a loan or spend your entire savings.

Buying: How Many Homes Should You Tour?

Robin Kencel | June 13, 2019

Here are the factors that contribute to whether you'll be able to find the right home on your first tour or tenth.

Best Places for Public Transportation

Devon Thorsby | June 12, 2019

These metro areas have public transit systems that help a significant number of their residents get around.

How to Rebound After an Expired Listing

Lisa Larson | June 10, 2019

An expired listing with your real estate agent shouldn't be considered a failure. Here's how to get your home sale right the next time.

8 Outdoor Patio Decorating Ideas

Devon Thorsby | June 7, 2019

Make your time outside a little more enjoyable with these decor tips.

Outlook for the Housing Market in the Next Recession

Devon Thorsby | June 5, 2019

Homeowners should not fret, as long as they're prepared for the possibility of a downturn.

Should You Sell Your Own Home?

Deanna Haas | June 5, 2019

The "for sale by owner" approach is a great option for some, but not for everyone. Are you a qualified candidate for the FSBO route?

Buying a Home in a Buyer's Market

Wendy Arriz | June 4, 2019

Many parts of the U.S. are seeing homebuyers have the upper hand at last. Here's how you can make the right deal during a buyer's market.

Questions About Housing Code Violations

Devon Thorsby | May 31, 2019

Chances are your house doesn't follow code, but that doesn't necessarily mean you're out of luck.

The Best Places People Are Moving To

Devon Thorsby | May 30, 2019

Check out which metro areas are growing the fastest.

8 Ways to Upgrade Your Front Porch

Devon Thorsby | May 22, 2019

These projects can take your front porch from a simple stoop to an outdoor living space.

Signs You Have a Good Real Estate Agent

Deanna Haas | May 22, 2019

How can sellers know when they’ve found the perfect listing agent? Here are some telltale signs.

6 Ways To Try Out A Neighborhood

Steven Gottlieb | May 21, 2019

How to determine whether a neighborhood is right for you before you close on a home.

How Much Does It Cost to Sell Your Home?

Dima Williams | May 20, 2019

From the real estate commission to taxes, a slate of costs accompanies the sale of a property.

The Most Desirable Places to Live

Devon Thorsby | May 17, 2019

Check out where U.S. residents would live if they could.

How to Finish a Basement

Devon Thorsby | May 15, 2019

Before you dive into a massive construction project, know the cost and process involved when finishing a basement.

10 Affordable Spring Renovation Projects

Andrea Woroch | May 14, 2019

Transform your space without overspending on a home renovation.