The U.S. housing market’s red-hot recovery from the depths of the crash five years ago is fueling concerns among economists and real estate brokers that home prices are overheating.
As The Wall Street Journal reports, a dearth of new construction and strong demand from buyers are pushing up prices twice as fast as the rate of income growth, a level economists say is unsustainable.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index released today shows that in February home prices rose 5.8% from the same month a year earlier. That put prices nearly 40% above their level at the bottom of the housing crash in February 2012.
At the same time, incomes rose just 3% in February from the same month a year earlier, and are up 12% since February 2012, the U.S. Labor Department says.
Some local markets, like San Francisco and Dallas, have experienced extreme swings. Bidding wars are breaking out. Agents say some buyers are kicking in extra cash when properties don’t appraise for the asking price and even waiving their right to home inspections.
“It can’t be sustained,” Nationwide chief economist David Berson says of the frenzied buying.
Economists generally expect prices to continue rising quickly in most markets for a couple more years, if the economy keeps expanding.
They say it is more likely that overheated markets are headed for a long period of flat or slightly declining home prices, especially if mortgage rates rise or job growth slows, but not an outright crash.
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