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Stop it! There is no national housing bubble

A for sale sign is seen in front of a home in Miami, Florida.
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A for sale sign is seen in front of a home in Miami, Florida.

No, we're not in a national housing bubble. Period. End of story.

Yes, it is true that home prices, on average in 20 major metropolitan areas are above the 2007 peak. It is also true that specific, highly populated cities with limited supplies of new and existing homes are experiencing "surge pricing" amid strong demand.

In fact, pending home sales expanded in most of the country in July and reached their second highest reading in over a decade, according to the National Association of Realtors. Only the Midwest saw a dip in contract activity last month.

Still, if there are "bubbles," they are local in nature and, likely, do not pose the type of systemic financial risk that was created in the easy-money housing boom of the last decade.

Manhattan, Brooklyn, San Francisco, Los Angeles, and a handful of other cities, have sky-high housing prices driven, in large part, by high-paying jobs, a population influx, relatively limited supply and an influx of foreign money, especially in the super luxury category of homes and condos.

But this is not an "all in" moment on the housing front. While interest rates are low and housing affordability is generally quite high, there is no credit-fueled speculative excess in housing that allows even the least qualified buyers to get in on the game.

Real market bubbles are relatively rare, but share very common features that this run up in housing prices most obviously lacks.

Bubbles have been studied by a host of academic economists and students of financial history, from Ben Bernanke to John Kenneth Galbraith to Charles Kindleberger, and from Edward Chancellor to Jim Grant.

"Some cities and localities are clearly overpriced, and are about to be met with an onslaught of new supply, Brooklyn, Miami and Manhattan, among them."

In a market bubble, price increases appear slowly at first, gaining momentum over time, while the public remains skeptical of a market's rise, be it in stocks, commodities, real estate, art, wine, or collectibles.

That skepticism gives way to grudging acceptance as more and more professionals, individuals and outright speculators push prices higher still.

The cost and availability of credit provide fuel for a bubble to inflate, inviting even less experienced, or less credit-worthy players into the game, all of whom believe they will sell their recently purchased assets at ever-increasing prices.

Speculation truly accelerates until prices exceed historic norms and individuals are fully convinced that these "trees will grow to the sky." Overinvestment boosts supply until it exceeds existing demand, which a key sign that a bubble is about to burst.

One can argue that some real estate transactions of recent vintage contain the characteristics of bubble psychology, but what is truly missing is broad public participation.

Individuals are not flipping condo options in Miami, nor are they obtaining mortgage loans in excess of the value of the underlying real estate.

Less than credit worthy borrowers do not have access to easy money. Indeed, it is almost impossible still for an owner of an "underwater" mortgage to simply refinance his or her home to make it more affordable.

There will, no doubt, be a disruptive event in the near future, most likely a series of rate hikes from the Federal Reserve (though, as I have persistently argued, there is no need for it), that will topple the regional bubbles that exist in pricey real estate.

But the banking system is not drowning in sub-prime mortgages that have been securitized to investors. Nor are banks as leveraged to real estate as they were ten years ago.

Some cities and localities are clearly overpriced, and are about to be met with an onslaught of new supply, Brooklyn, Miami and Manhattan, among them.

But the problems are not big enough to create another major, national, real estate recession. They are, however, large enough to create local recessions for those who traffic in high-end real estate.

This is a first-world problem. The world that most of the rest of us inhabit will muddle along. There will be another national financial market bubble one day. However, you probably won't find it at home.


Commentary by Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street. Follow him on Twitter @rinsana.

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