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What If the Housing Bubble Never Happened?

Posted by: Prashant Gopal on August 11, 2009

Slow and steady housing markets now seem to be in better shape than markets that boomed and busted such as Florida and California. But does that mean that homeowners in the former bubble markets would have been better off if the housing boom never happened?

University of Central Florida finance professor Stan Smith decided to explore that question by studying Orlando metro home prices. Turns out that prices probably would be about the same today even if the area had never experienced a bubble and bust, Smith told the Orlando Sentinel.

Smith says that buyers who bought before 2005 should not have been hurt because prices went up before they went down. Orlando area prices rose 20% in 2005 and 32% in 2006, but — on average — they climbed just about 4.7% a year since the 1970s. “Most homeowners are within 6 percent of where they would have been had there not been a bubble,” he told the newspaper. “A lot of people did buy in 2005 and 2006, and obviously they have been hurt significantly.”

The strongest markets in’s second-quarter home value report released today are primarily metros that never had housing bubbles or crashes. Many of the metros are affordable places such as Binghamton, N.Y., Fayetteville, N.C., and Little Rock, Ark. where few homeowners made fortunes on real estate and few were ruined by it.

Reader Comments

Allison Ables

August 14, 2009 5:17 PM

The UCF Oviedo/Orlando area is booming as other state schools here in Florida are reaching their potential. UF in Gainesville is out of room to build on. I'm sure these newer areas will experience rapid growth for years to come.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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