Housing Bubble? Despite Rising Prices, Most Economists Still Say No

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The S&P/Case-Shiller Home Price Index released on Tuesday was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another bubble forming?

According to Tuesday’s data housing prices have been climbing for 35 consecutive months, but economists pointed to several reasons why that isn’t a concern, namely that while prices keep rising the rate of growth has slowed. In the first three months of this year home prices gained 0.8%, according to the S&P Case-Shiller national index. That’s down from 2.8% in the first three months of 2013 and 1.2% during the same period of last year.

“There is no bubble to be anxious about,” said David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. Price growth in most markets is “a lot softer” than it was a year ago, he noted.

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Lawrence Yun, chief economist for the National Association of Realtors, has been among the loudest sounding the alarm that prices are too high. But he said that he isn’t worried about a bubble, just that the lack of affordability may cause demand to evaporate.

“In a sense it is demoralizing for people who want to save up for a down payment,” he said.

Another concern is a possible jump in interest rates. John Burns, chief executive of John Burns Real Estate Consulting Inc., said that would put homes out-of-reach for many at current price levels in many major cities.

Today mortgage rates are roughly about 3.7%. That makes homes in all top 30 metro areas either undervalued or fairly valued at current prices, according to Mr. Burns. But if rates rose to 6%, homes in more than half of those markets, including Los Angeles, San Francisco, Miami, and Denver, would be overvalued.

“We are in a pretty precarious environment,” Mr. Burns said.

Source : The Wall Street Journal

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