Recently, many potential investors have voiced their suspicion that real estate prices are not recovering but rather a second bubble— potentially as bad as the first.

Some have expressed fears that the investors have created a false high in real estate values— one that will eventually collapse when homeowners return. Although people are understandably sensitive to market trends, there is a large difference between the 2007 real estate crash and now.

In an uninterrupted state, real estate prices normally rise about four percent a year. They’ve done this almost continually for the last 40-50 years. This rise isn’t a second housing bubble in and of itself; it’s a reflection of the increasing scarcity of land.

The U.S. population continues to grow, but the amount of land available for real estate development remains relatively the same. Look at San Diego County, one of the most desirable living spots on the West Coast; the area is bordered by the Pacific Ocean, Mexico, the mountains, and a marine base. There’s no room to build out, but we have a constant influx of more people trying to move here. More people and less room mean more selectivity in terms of who buys and rents. Homeowners and investors do this by raising the real estate prices.

It’s over simplifying to assume that a rise in price means there’s a new 2013 housing bubble. Oftentimes it’s a matter of demand outstripping supply.

four percent real estate inflation chart

Now to tie this back into the 2007 crash: back in the early 2000s, the economy started to really heat up and real estate prices took a very serious upturn. This jump, if you compare it to the normal rate of price inflation in real estate, was far outside the parameters of what would be considered normal.

In basic terms, the real estate market grew too much, too fast. The rate was simply unrealistic and couldn’t be maintained.

When the 2007 crash occurred, a lot of homeowners realized how far underwater they were with their new real estate. And naturally, they panicked. And the market panicked. And real estate prices crashed in response and bumped along a very rocky bottom until 2010.

Now that real estate prices are beginning to significantly rise, people are assuming the worst.

But they’re forgetting that the current low real estate prices in the market are just as abnormal as the extreme highs we saw in the early 2000s. The current low prices are the result of a market over-correcting itself in response to the overestimation.

Think of it like a rubber band stretched between two points. You pull the rubber band towards you and let go—it doesn’t go back to the middle point. It fluctuates back and forth. Eventually it returns to its middle position—but not right away. It has to continually adjust and readjust first.

That is what we are currently seeing. We stretched out to an extreme high and as a result have swung the opposite way into an extreme low. Now we are simply headed back the other way, but to smaller degree.

There might be some over inflation, but it won’t be to the extent that it was in 2007. And when it does occur, the market will readjust— although to a lesser degree— to correct it. It will keep doing this until we get back on the normal course for real estate, with around a four percent increase every year.

Right now, though, we’re still far below the normal line of what real estate prices should be. It’s an opportune time for real estate investors to consider investing in property because there is untapped equity in their homes. And that equity will remain even after the real estate prices even back out because the investor is buying below that normal four percent increase.

Is there the potential of a second housing bubble? Yes, but not to the same severity of what we saw in 2007. So long as investors remain savvy about when they enter the real estate market—and where they buy— they can still make good of the current prices without fear of ending up under water.