Found a good article on the JournalTimesOnline.com about bubbles and housing values.
There are two factors that affect real estate prices regardless of the market: building costs (materials and labor); and cost of financing. The cost of home building has and always will increase over time. Events such as a devastating hurricane or other natural disaster can drive up building costs quickly, but over time, price increases tend to follow inflation.
What is also common in all real estate markets is the cost of financing or mortgage rates. Over the past three years, record low rates have reduced the monthly costs of borrowing. It is the affordability of monthly mortgage payments more than anything else that determines how much a buyer is willing to spend on a home.
A lower interest rate means a buyer can have a larger mortgage to buy more house. Add this to a limited supply of available housing, and price increases follow.
Read the rest of this article here.
Article Quoted: Common factors drive price of real estate By Michael Haubrich