After a decade of instability in the real estate market, it looks like home prices are finally becoming stable. In 2014, housing prices advanced by 6.4 percent. Last year, they continued to increase by 4 percent. According to Kiplinger, the average home price in the United States will rise by another 3 percent in 2016. While this is at the lower side of the range historically, it shows a growing real estate market and a good time to buy a new property.

Cheap Mortgages May Disappear, But Home Ownership Is Still a Good Deal

With a stable, growing economy, the United States Federal Reserve no longer has to keep interest rates at record lows. Over the coming year, the Federal Reserve is expected to increase their interest rates. Although this will mean higher interest rates on mortgages, the difference will occur gradually. Across the United States, mortgage rates would have to advance by 6.5 percent to cost the same as renting. Rental prices continue to rise in most cities, so home ownership remains one of the best ways to lower monthly housing costs.

More Homes Are Reaching the Market

Last year was one of the best for single-family homes in the last decade. There were a total of 501,000 new houses sold in 2015. This is a 14.5 percent increase from 2014, and the highest number of new homes sold since 2007. Gains were felt the strongest in the Midwest and Northeast where new homes advanced by 31.6 percent and 20.8 percent, respectively. Across the nation, 236 out of 276 cities saw an increase in property value. Fortunately, home buyers do not have to panic about rising prices just yet because home prices were still 19 percent below their peak on average.

Currently, there are not enough houses available for everyone who wants to buy. There is still a lack of new development projects, so new housing projects dropped by 2.5 percent in December of 2015. This means that the current five-month supply of homes on the market may not be enough for buyers who are just starting to return to the real estate market. Some buyers will take this chance to invest in properties before interest rates rise, and this will only decrease the number of homes available for sale. In a typical supply-and-demand scenario, this would increase the prices of homes that remain available.

A Last Caveat

Although home prices are generally rising at a stable, safe rate for most of the United States, there are some areas that show signs of overheating. In these areas, homes are overvalued by as much as 23 percent. While a real estate investment is a winning proposition in 2016, it would be advisable to avoid the five most overvalued market areas. The overvaluation suggests that these areas may experience a housing bubble in the coming years. Reno was the most overvalued city at 23 percent. Bend, Austin and Boise were overvalued by 20 percent. Meanwhile California’s Riverside metropolis was overvalued by 17 percent.

These 5 Cities Might Be the Next Housing Bubble