House prices are reaching beyond historic norms, and some fear that we’re headed for another housing bubble.  But that really is not what’s happening, and to prove it, we just need to look at what caused the last housing bubble ten years ago.

As you probably recall, mortgage lending standards became far too lenient.  People who weren’t qualified under normal circumstances were able to get a mortgage anyways.  Home prices skyrocketed.  The increase in demand caused homebuilders to overbuild.  All those new homes and foreclosures flooded the market, and down it crashed. It was the perfect recipe for disaster and a recession.

Thankfully that’s not the way things are headed today. Even though lending standards have become more reasonable over the last few years, they’re nowhere near the levels they were in the early 2000s.

Also we can look at new construction and see that builders are not overbuilding. Average annual housing starts in the first quarter of this year were not just below numbers recorded in 2002-2006, they are below starts going all the way back to 1980!

And lastly, home prices are nowhere near what they were in 2007.  So the bottom line here is that any fears that we’re headed for another bubble are completely unfounded. Hopefully everyone learned their lessons from the last housing bubble.