Are We in Housing Nirvana?

Have you ever heard of Bill McBride? He was one of the first people to warn us about homes becoming over-valued during the bubble. So what is this well-known finance and economics blogger saying about today's market? He agrees with Ivy Zelman, who says "we're in Nirvana for housing"!

So what makes today's market Nirvana?

The largest obstacle the market has been facing is inventory. There are a lot of buyers out there, and not enough homes for them to buy. Because distressed properties have been so affordable, builders have been unable to produce competitively priced homes. In fact the ratio of existing-homes sold to new-homes sold hit a historical low in 2010. The ratio was 17 existing homes sold for every 1 new-home sold.

While builders have been unable to build, communities have continued to grow. Now that a large portion of the distressed properties have been purchased, and home values are beginning to rise, builders are able to break ground on more new homes. This year has seen 11 existing homes purchased for every 1 new-home sold. This is much closer to the normal growth average of 8 to 1. Permits for single-family homes hit a 5-year high this year, and new-home sales are up 29% from a year ago!

This is just the beginning. As the market improves, household formation is expected to pick up. Already housing starts are up 13.1% from a year ago. Trends in home sales show an increase in real estate investment. The best news of all: there's still room for growth in the housing market.

All of these factors have caused Bill McBride to say the future of housing is "so bright, [he's] gotta wear shades."