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

TRD MIAMI /
May.May 16, 2013 02:00 PM

From left: Jed Kolko of Trulia and Dean Baker of the Center for Economic and Policy Research

Steep home price gains in certain U.S. markets, including South Florida, 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.

The traffic for housing is evident in South Florida, Bloomberg said. Keeping up with demand, the region now has 20 condominium properties — over 3,300 units — under construction. There are also nearly 15,000 units planned, and 75 percent of them are slated for Miami-Dade County alone.

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


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