Will The Housing Bubble Burst in 2007?

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Joe Raedle / Getty

A home put up for sale in 2006 in Miami, Florida.

Since early 2000, economists have been sounding the housing bubble alarm with increasing urgency. And while many markets around the country have seen prices drop in the last year, the dire, across-the-board correction that many predicted has yet to materialize.

There are several factors that could cause a real estate bubble to burst, but the most important factor, one that is sometimes overlooked, is buyer and seller sentiment-how we feel about what's likely to be the biggest windfall, or biggest purchase, of our lives.

Our real estate search and browsing patterns provide a window into the minds of buyers and sellers and offer more than a glimpse of their feelings about the current market. Take for example the simple search for "housing bubble." As bad news continues to build around the housing market, you would expect that "housing bubble" searches would be nearing a crescendo. Actually, the opposite is true.

As of the week ending February 17th 2007, searches for "housing bubble" have reached a two year low, only 4.4% of the searches on the same subject that occurred during the second week of June 2005. A media frenzy around a pending correction occurred that very same week, which demonstrates just how suggestible we are, as well as how short our attention spans can be.


NOTE: Chart of weekly search term share of traffic to 'all categories.' Breaks in graph represent insufficient data.
SOURCE: Hitwise

But while the bubble seems not to be a major concern, there is a growing game of chicken between buyers and sellers. In the past, searches for "homes for sale" have outnumbered "homes for rent" by nearly 3 to 1. As of last week that margin was cut nearly in half as online domicile searchers indicated their willingness to at least explore renting pending a drop in home prices.

On the supply side, bad real estate news is met with increased visits to websites that calculate home values based on comparable sales, such as www.housevalues.com and www.zillow.com. During bad news days, sellers apparently feel the need for a comforting pat on the shoulder, checking-in on home sales in their neighborhood to estimate the current value of what's likely their biggest investment. What's notably absent though is increased search activity around sellers listing their properties or lowering their asking price, signaling that sellers, like buyers, are willing to wait-out the current unsettled market.

Despite the impasse that the data is painting, in the depths of the search tables for this last week are a few terms to keep an eye on, such as "sell my house fast," and "how to stop a foreclosure." If those reach significant volume, signaling an urgency to sell, the housing bubble alarm might finally ring true.

Bill Tancer is general manager of global research at Hitwise.