Across the nation, rising home prices suggest a definite recovery from the 2008 recession — and there’s no doubt you’ve come across more than a few articles speculating on an impending real estate bubble. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free But are we really in store for a collapse of the housing market? Only in certain parts of the country, says a new study conducted by real estate experts Norm Miller, Hahn Chair of Real Estate Finance in the School of Business Administration’s Burnham-Moores Center for Real Estate at the University of San Diego (USD), Michael Sklarz, president of Collateral Analytics and Jim Follain, senior vice president for research and development at Collateral Analytics. Pooling new research from almost 400,000 neighborhoods and 20,000 surrounding zip codes across the country, Miller and his co-authors detail their findings in a white paper called, “Is a New Home Price Bubble Forming?” In the study, they focus on defining the characteristics of a “bubble” and finding economically sound ways of evaluating the intrinsic value of homes so as to take a more accurate look at where we are in terms of market sustainability. Related: How to Profit From a Hot Real Estate Market (Even if it’s a Bubble) Their findings uncover strong correlations between an area’s industry and its real estate market’s volatility. “In markets where wealth is volatile, say for markets with a heavy concentration of recently successful tech start-ups, changes in the value of these companies could also be considered a volatile factor driving prices,” states the research paper. “Changes in incomes, on the other hand, rarely change rapidly and are less likely to trigger rapid price declines except in markets with little industrial diversification.” What Does This Mean for Specific Markets? Miller cautions against the abounding use of “bubble” when describing the U.S. real estate market as a whole. True real estate bubbles, he adds, are more rare than may be commonly believed: “[A] reason why we do not use the term ‘price bubble’ freely is that real ones are very infrequent. Examples of real bubbles include, stock prices in 1929, 1987, and NASDAQ stocks in 2000, gold and silver in 1980, Japanese land and real estate prices in 1989-90, and, of course, home prices in the U.S. in 2005- 2007. Based on these rare examples, it is reasonable to say that true bubbles only occur on average once in a generation.” Still, several specific markets may have reached levels of unsustainability. Factors that drive this volatility include neighborhoods with low equity and high loan to value ratios, median household income, the value of the U.S. dollar against foreign currency, demand for coastal housing with limited supply and dependence on low interest rates. The study cites the following areas as at risk for near-bubble levels, in part due to reliance on tech capital and rapidly changing valuations of startup industry: Miami, FL Denver, CO Portland, OR San Diego, CA Oakland/Berkeley, CA San Francisco, CA San Rafael, CA U.S. Housing as a Whole Remains Sustainable Miller and his team focused specifically on the neighborhood level, he says, because when markets collapse, they tend not to do so evenly across metro areas. Rather, looking at localized areas is key to getting accurate housing data. Related: Are We in a Real Estate Bubble? An Investor’s Analysis of Current Market Trends And while some specific areas are inflated (and this could be seen as more of a “tech bubble” than a “real estate” bubble, where declines will likely be driven by falling stock prices), the U.S. as a whole is not on the precipice of a burst real estate bubble, Miller says. “Our analysis based on a number of approaches we have used over the years to identify home price bubbles is that we are far from bubble territory on a national or metropolitan level and that anyone claiming otherwise is looking to sensationalize an issue which does not exist.” What do YOU think about this study? What are you seeing in your local market? Leave a comment, and let’s talk!