Definition, BOOM: commonly measured as a 30 percent or greater increase in inflation-adjusted (real) home prices during any three-year period.
Definition, BUST: measured as a 30 percent or greater decrease in a three-year period.
The nation’s housing price boom has noted an increase in prices of nearly 50% over the last five years. Last year hit a 25 year record with a 13% rise in pricing. So the consumer is left to wonder when the market is going to bust. The Federal Deposit Insurance Commission (FDIC) has recently posted a report entitled “U.S. Home Prices: Does Bust Always Follow Boom?” They cited the commonality for busts not to be present, measuring (by definition) only five metro busts (out of 361 cities) since 1978.
Tracking the patterns of boom episodes in 361 cities across the country, the FDIC has realized a trend less harsh than a bust. “We have seen that most booms usually do not go bust but instead tend to result in a period of price stagnation.” Nonetheless, there is overwhelming distress for homeowners, not measured as a bust, but causing population losses, employment rates, and, and a decrease in demand. These events alone will tend to eventually trigger a bust.
San Diego has experienced a major boom in the last three years, raising home prices by over 22% in 2004 alone. Many see a stagnation occurring rather than any major deflation. Some suspect that rising interest rates will affect price. Others see a growing job market with educated workers ready to join the biotech empire.
A bust will probably require economic shock, including an outflow of population. Just because the market has boomed, it isn’t set up to bust. For more detailed information visit the FDIC’s report online
