The National Association of Realtors' home affordability price index can be helpful in detecting signs of a housing bubble, and it looks like we could be in one, an analyst wrote on the CNBC website. Despite many saying bubble fears are overblown, the NAR affordability index may have slipped to a level that shows signs of a frothy market. CNBC explains:
This year affordability fell below the long-term trend in April. We remained below trend in the May, June and July reports.
If the Robert Morris economists are right about below trend affordability indicating a housing bubble, we're definitely there right now.
This does not mean that home prices are poised to crash immediately. Keep in mind that home prices continued to climb for over two years after affordability fell below trend, peaking in April 2006. But it may mean that the Federal Reserve might need to start raising interest rates sooner than some expect in order to deflate our new housing bubble.