The Return of the Bubble — It’s Official

Today’s Los Angeles Times has made it official: the new bubble in housing is upon us. See Alejandro Lazo and Andrew Khouri, Soaring Home Prices Raise Fear of Bubble, L.A. Times, June 26, 2013, at p. B1. We could go into the details of it, but suffice it to say for now that this article confirms the concerns we have been voicing on this blog recently. Quoth the Times:

“Home prices in large U.S. cities rose sharply in April posting the biggest one-month gain in the history of a leading U.S. home price index.”

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“Prices have risen so quickly in some markets — including Los Angeles, San Diego and San Francisco — that some economists are warning of another housing bubble.

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“Home prices can’t continue at this breakneck pace without accompanying growth in jobs and wages, economists said.”

The problem is that many of those eager homebuyers are speculators who buy for cash and who may able to “flip” their purchases just as soon as rising home prices start slowing slow down or worse, start heading down in response to rising interest rates. If — or should we say, when — that happens it won’t be pretty for ordinary home buyers who may again be stuck with “underwater” homes as they were in 2008. And while the hard-bitten pros who make up much of this market may shrug off selling below the peak (as long as they realize a profit in the “flip”), ordinary homebuyers may not be able to follow suit quickly enough, and . . . As we said, it won’t be pretty.

So stay tuned and keep alert.

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