The Real Deal New York

Morgan Stanley: We don’t see housing bubbles

February 02, 2014 03:00PM
By Business Insider

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WEEKENDEDITION Economist Robert Shiller warned all of us of the U.S. housing market bubble before the bubble eventually burst.

So, people took notice when Shiller said that some local housing markets in the U.S. were looking “bubbly.” He’s pointed his finger repeatedly and specifically to Phoenix and Las Vegas where prices have roared back. The credit analysts at Morgan Stanley, however, disagree with these concerns.

“While there are clear geographical variations in the pace of recovery, we do not find ‘bubbles’ across a wide range of regional housing markets,” wrote analysts led by Vishwanath Tirupattur. They begin their argument by noting that home prices nationally are 19.94% below their peaks.

“While we do not suggest that the pre-crisis peaks were not bubbly, the fact that we are almost 20% below levels attained eight years ago tells us that, at least at the national level, it would be hard to categorize the rise in home prices as a bubble,” they wrote.

This is the framework they use to defend today’s hotter metropolitan statistical areas (MSA).

“[T]he MSAs that endured the most serious declines in home prices have also rebounded the most. Home prices in MSAs such as Las Vegas, Phoenix and Miami – now regarded as the banner cities for pre-crisis ebullience for housing, recording declines in the 50%+ range – have shown notable rebounds, with price increases in the 30-45% range. Still, they are 35-45% below their pre-crisis peaks. Of the 20 MSAs we look at in Exhibit 1, San Francisco stands out, with a near 50% appreciation in prices since the trough. Still, it is 18.06% below its pre-crisis peak…”

“Besides illustrating the non-symmetric nature of arithmetic averages, this helps to show that, even at a more granular level, the bubble talk seems premature, in our view,” they wrote.

Unfortunately, asset price bubbles never look like bubbles until after they burst.

  • Jonathan Yunason

    No housing bubble… Market seems balanced and stable in most areas.

    • Victor

      Our wonderful govt. is now printing Reichmarks at the rate of at least $85 billion per month. The Chancellor says the economy is humming along. He targets his political enemies by using the IRS to ruin them. Like the Fuhrer is a corporatist who chooses winners and losers in business. What seems is not. I read statements like yours and I’m ready to sell. As long as these criminals steal from the taxpayer and redistribute to their cronies we will always need to be on the watch to hopefully see the bubbles when they happen and hopefully be one of the lucky few that bails at a reasonable time and doesn’t have to suffer so much pain. Please open your eyes.

      • Jonathan Yunason

        Hile Victor! My comment was a business point view…. I am not a politician. I am just a regular tax payer trying to support a family, though i do understand your frustration. Sell everything you have is my best suggestion.

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