May 19, 2013

Housing market showing signs of bubbling

As home prices jump, economists caution that in some areas they are rising at a pace that is unlikely to last.

By PRASHANT GOPAL and KATHLEEN M. HOWLEY Bloomberg News

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U.S. home prices jumped almost 11 percent in March from a year earlier, the biggest gain since the height of the real estate boom in 2006. Demand for housing has been fueled by low mortgage rates, a scarcity of listings and investors’ appetite for foreclosed homes.

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A home inspector checks the roof of a house being sold in Dunwoody, Ga., recently. The Atlanta area saw home prices increase by more than 30 percent in the first quarter from a year earlier.

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In other cities, demand remains stagnant and the market is far from overheated.

Nationally, prices dropped so much during the crash that they remain about 7 percent undervalued, based on comparisons with historical prices, incomes and rents, Trulia Inc. said this week, introducing a feature on its website called "Bubble Watch."

Still, the recent price surge has made eight U.S. markets -- including Orange County, Calif.; Houston; and Portland, Ore. -- overvalued, the San Francisco-based real estate data company said.

Of the 150 metropolitan areas tracked by the National Association of Realtors, nine out of 10 showed price increases in the first quarter from a year earlier and areas such as Silicon Valley, Calif.; Phoenix; Atlanta; and Reno, Nev. saw gains of more than 30 percent, the group said.

Prices declined in 17 markets, including Edison, N.J.; Champaign-Urbana, Ill.; and Allentown, Pa.

In much of the country, inventory has been drained by institutional investors such as Blackstone Group and Colony Capital buying single-family homes, often foreclosures, to turn into rentals, said CoreLogic Chief Economist Sam Khater.

Blackstone, the largest buyer in the United States, spent more than $4 billion on 24,000 rental properties last year.

Vitner, of Wells Fargo, said investors are buying properties as quickly as they can and when they leave, housing will take a hit. Investors accounted for 19 percent of sales in the U.S. in March and even more in some former bubble markets, according to the National Association of Realtors.

"The problem is if they don't earn a high enough return, they all walk away," Vitner said. "Investors accounted for a larger proportion of the housing recovery than people realize."

In south Florida, 20 condominium towers with more than 3,300 units are under construction, according to Peter Zalewski, owner of Condo Vultures, a brokerage and consulting firm based in Miami.

Another 14,600 units are planned, about three-quarters of them for Miami-Dade County, where the crash left dozens of unfinished and failed condo projects, now mostly filled with renters, he said.

"I don't think there's any question that we're in the early stages of the next great south Florida construction boom," Zalewski said.

The conditions that have propelled prices up for the past year won't last, said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pa.

"We're eventually going to see mortgage rates increase, supply increase and affordability decline, so you probably cut price gains at least by half," Naroff said. "It will be a slowdown, not a crash."

 

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