Some big cities at risk of another housing bubble:Shiller

Thu Jun 27, 2013 6:35pm EDT

A vacant Housing and Urban Development (HUD) home (R) is pictured in North Las Vegas, Nevada April 2, 2013. REUTERS/Steve Marcus

A vacant Housing and Urban Development (HUD) home (R) is pictured in North Las Vegas, Nevada April 2, 2013.

Credit: Reuters/Steve Marcus

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(Reuters) - Dramatic home price gains in some of America's largest cities point to a potentially new housing bubble in those areas, according to Robert Shiller, who helped create a closely watched gauge of U.S. housing prices.

Shiller said big price gains in Las Vegas, Los Angeles, San Francisco, Miami and Phoenix, fueled in part by a large influx of outside investor money, are a possible sign of trouble ahead.

"There is a risk of bubbles in these cities," Shiller, a co-founder of the S&P/Case-Shiller Home Price Index, told Reuters on Wednesday. "House prices increases have been dramatic. It looks like the beginning of the last bubble."

There is a risk that prices could rise for another year in these areas and then fall back, hurting newer buyers as they try and compete in markets where low inventory and all-cash Wall Street investors were pushing prices upwards.

The latest Standard & Poor's Case-Shiller index report showed that prices of single-family homes in 20 U.S. metropolitan areas jumped 12.1 percent in April, marking the biggest annual gain in seven years. The gains were led by price increases of 24 percent in San Francisco, 22.3 percent in Las Vegas, 21.5 percent in Phoenix, 19 percent in Los Angeles and 13 percent in Miami.

The price gains were the latest sign that the U.S. housing market, a cornerstone of the American economy, may be in a sustainable recovery after the catastrophic property crash that triggered the 2008 financial crisis and subsequent deep recession.

Shiller said it is still too early to predict how healthy the housing recovery is, and he was unsure if prices overall would continue to rise after another year.

But a property crash was unlikely in the near term, he said, because lending rules have tightened and government oversight of the mortgage industry has been strengthened.

Average U.S. mortgage rates increased to their highest levels in two years this week, to 4.46 percent, according to Freddie Mac, the number two home lending company, a potential break on house price increases.

But Shiller said there were clear signs of buying behavior in some major cities that pointed to a housing market that was already overheating, despite the 2008 crash.

(Reporting by Tim Reid in Los Angeles; Editing by Leslie Adler)

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Comments (1)
HangTouh wrote:
In Los Angeles the banks over the past years have squeezed supply by holding back foreclosure inventory. There are 1,024 Trustee sales active today in western Los Angeles county alone. The banks dragged their heals helping deserving people refinance, (and in the case of Bank of America accused of lying to customer’s and rewarding employees for denying HAMP loans to flip into more profitable internal loans which I suspect is true) dragged out “subject to lender approval” short sales, all the while increasing demand and artificially boosting prices. So the houses they delayed foreclosing on are worth almost 20% more today then they were a year ago? Right.

Once again greed and apathy are hurtling our country toward financial ruin. It is mind boggling that our leadership was unable to prosecute anyone involved in the meltdown and have yet been able to reel this beast in and employ a reasonable recovery plan. Let’s hope that Krugman’s rose colored glasses prediction of a spontaneous recovery pans out.

Jun 28, 2013 2:27pm EDT  --  Report as abuse
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