Experts Warn of Second Housing Bubble

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While there have been significant improvements in the national housing market over the course of the last 12 months or so, some experts are now growing concerned that those jumps in property values might actually constitute the growth of a second bubble that once again endangers the industry.

During the run-up to the housing bubble burst of 2006, housing prices improved well above the historical growth of about 4 percent annually, according to a report from CNBC. In 2002 and 2003, prices rose about 7 percent a year, then grew another 8 percent in 2004 before exploding by 12 percent in 2005. During that time many experts noted that the dangers that these increases — considered to be wholly unsustainable — posed in the long run far outweighed the short-term benefits. Now, similar trends are giving those in the industry pause once again.

The latest data indicate that in the 12-month period from December 2011 to December 2012, home prices jumped 8 percent nationally, which may once again border on being unsustainable, the report said. However, it should also be noted that even despite those surges, prices are still significantly below the levels observed before the last bubble burst, so there still may be some more room for improvement.

What may be most troubling about this national recovery is that even as it far exceeds historical norms, it is also very disparate, the report said. Experts note that in areas gaining steam in general, the upticks in values have been significant (Phoenix, for example, saw year-over-year gains of 26 percent), while prices in other parts of the country have largely stagnated. That indicates that if prices were to stop rising in markets experiencing gains — constituted largely by those with large inventories of real-estate owned properties now being scooped up by investors — the national average value will flatline or even begin to drop once again.

The reason those markets experiencing gains are so precarious is likely because a large number of troubled homes are being purchased by massive investors such as hedge funds, which could decide to get out of the market at any time, the report said. Their doing so would likely cause major problems, particularly if there are no buyers for those properties.

Most experts’ projections show that the housing market should continue to gain steam at least for the rest of 2013, spurred largely by high affordability drawing more consumers into exploring the possibility of buying.

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  • Long

    I remain largely skeptical. I don’t think most Americans are ready for home ownership and are just digging deeper into debt to live “the dream” of home ownership. Just like many investors jump back into the stock market when it it soaring, people are purchasing homes at the wrong time.

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