Are U.S. home prices rising at unsustainable levels?

May 16, 2013 01:30PM

Steep home price gains in certain U.S. markets, including Brooklyn, have some economists worried that the increases are unsustainable for a healthy housing market, forecasting another real estate bubble, Bloomberg News reported.

“If prices keep going up at this rate for another six months, we will have a bubble, and people will get hurt,” Dean Baker, the co-director of the Center for Economic and Policy Research in Washington, told Bloomberg.

In Brooklyn, for example, a recent open house for a Crown Heights brownstone listed for nearly $1 million brought in 300 visitors and 50 offers, Bloomberg said.

Across the country, home prices in March were 11 percent higher than the same month a year ago, when prices were at their lowest since the boom. The increase was the biggest year-over-year gain since 2006.

“It’s a big change from a year ago,” Paul Willen, a senior economist at the Federal Reserve Bank of Boston, told Bloomberg. “You’ve gone from hearing horror stories about people losing money to hearing stories of frenzy — lots of traffic and multiple offers.”

However, the debate on whether a bubble is inflating is far from settled.

Trulia’s chief economist, Jed Kolko, recently said that home prices are undervalued compared to incomes and rents, whereas in the bubble years, they were overvalued. U.S. home prices are now increasing at the same rate as they did during the 2003, 2004 and 2005 bubble years, Trulia data show. [Bloomberg News]Zachary Kussin