FORTUNE – Only a year after the U.S. housing market hit bottom, it may be bubbling up -- again. Odd as it may seem, some economists warn the steady rise in home prices, at least in some markets, are inflated and could eventually pop.
Prices nationwide rose nearly 6% last year -- more than most ever expected. While that has continued so far this year, leading builders to build again, prices in some places have risen faster than incomes. Eventually, they could fall back as homes become less affordable.
"If prices keeps going up at this rate for another six months, we will have a bubble, and people will get hurt," Dean Baker, co-director of the Center for Economic and Policy Research recently told Bloomberg.
The housing market may or may not be approaching bubble territory, but a handful of cities have certainly seen home prices soar beyond market value, according to Trulia, a San Francisco-based real estate data company. Of the largest 100 metro areas, Orange County, Calif., appears to be the most overvalued, with prices 9% above Trulia's estimate for fair value. Los Angeles homes are 5% overvalued, San Jose is 3%, and San Francisco real estate is 2% above fair value.
And even though Texas's biggest cities largely avoided the last housing bubble, markets there are also heating up. By Trulia's estimates, prices in Austin are 7% overvalued; they are 5% above fair value in San Antonio and 2% overvalued in Houston.
Indeed, prices across many parts of the country are rising just as rapidly as they did during the bubble years of 2003, 2004, and 2005, but the housing market is still far from bubble territory.
Trulia's economist Jed Kolko says when comparing what traditionally drives home prices, such as rents and incomes, the overall housing market is still undervalued by about 7%. This of course is a big improvement from the bottom of the downturn in late 2011 when prices were undervalued by 15%, but prices are far from the peak of the housing bubble when homes were overvalued by 39% in early 2006.
Some markets are clearly inflated, but there are plenty of big reasons why it's unlikely that buyers will see prices soar that much higher. With the unemployment rate at 7.7%, joblessness has held back many would-be buyers. And while more borrowers are being approved for new mortgages, lending standards at banks remain tight.
And despite big increases last year, home prices in Las Vegas and Detroit are among the most undervalued, according to Trulia. At best, the recovery is choppy. So the bubble that some fear may very well deflate before trouble abounds.
Fewer Americans have a stake in the stock market, and unemployment may be preventing more from investing in equities.
FORTUNE – As U.S. stocks soar to new highs, economists argue the rally makes people feel richer. And when they think they're wealthier, the theory is that they'll spend more on everything from homes to cars and clothing.
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More good news for the housing market.
By Joshua Steiner, Hedgeye
FORTUNE -- The chart above shows the ratio of new home sales to total sales historically back to 1999. Currently, new home sales are running at 7.8% of total sales. From 1999 to 2005, new home sales averaged a fairly consistent 16% of total sales. The low watermark was 5.5% in May 2010.
The trend in new home sales as a MOREApr 25, 2013 12:47 PM ET
Signs that the big money has retreated from the foreclosure boom may be good for the housing market overall.
FORTUNE – When the U.S. housing market crashed in 2007, millions lost their homes to foreclosure. With their finances in shambles, they picked up the pieces by renting rather than buying. Big institutional investors quickly caught on, snapping up foreclosed properties on the cheap and renting them out.
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Borrowing is still relatively cheap, so more potential homeowners may dive into the market.
FORTUNE – Mortgage interest rates have been rising on signs that the U.S. economy is improving. Last week, the 30-year fixed rate reached the highest level in more than six months, climbing to an average of 3.63%, compared with 3.52% the previous week and 3.92% a year earlier. The current rate is the highest it's been since MORENin-Hai Tseng, Writer - Mar 18, 2013 10:57 AM ET
Housing construction is soaring, but much of it is still going to renters.
FORTUNE – For all the good news we've heard about the U.S. housing market, some things still haven't changed. Builders are breaking ground on more new homes than we've seen in years, but buyers aren't exactly clamoring for them.
For the past year, housing starts have risen by 37%. However, home sales haven't kept up, rising only 9% during MORENin-Hai Tseng, Writer - Feb 12, 2013 10:49 AM ET
Despite the recent positive signs in the housing market, one key group has not yet returned.
FORTUNE -- In another sign that the U.S. housing market is recovering, the closely watched S&P/Case-Shiller index report on Tuesday noted home prices over the summer posted its biggest percentage gain in more than two years. This is good news, but a crucial segment is missing out on better days: First-time homebuyers.
In October, the share of MORENin-Hai Tseng, Writer - Nov 27, 2012 10:59 AM ET
The nature of the housing rebound will depend on who is doing the buying — and that's increasingly investors.
FORTUNE -- After witnessing one too many false starts in the recovery of America's housing market, it's hard not to be a little skeptical about what kind of recovery we should expect. Will it improve steadily, or experience choppy stops and starts?
One way to determine that is by looking at who is MORENin-Hai Tseng, Writer - Oct 26, 2012 9:58 AM ET
Fighting foreclosure, one room rental at a time.
FORTUNE -- Last year Debra Giusti left her job as an IT project manager to help care for her 91 year-old mother, who was suffering from advanced Alzheimer's disease and a broken pelvis. But when she tried returning to the workforce, Giusti couldn't find any takers. Meanwhile, the mortgage payments kept coming due on her 3-bedroom home in San Mateo, California.
What saved Giusti from foreclosure MOREDan Primack - Aug 16, 2012 11:23 AM ET
New data suggests that more buyers are getting home loans, but the reality is much different.
FORTUNE – This summer, Americans' interest in taking out a mortgage has skyrocketed, rising to its highest level in at least three years, according to a quarterly survey of lenders released by the Federal Reserve this week. Nearly three in five U.S. banks, or 57%, reported an increase in demand for home loans over the past MORENin-Hai Tseng, Writer - Aug 9, 2012 11:54 AM ET
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