Real estate euphoria: Is America in a new housing bubble?

The benchmark Case-Shiller housing index is partying like it's 2006 — when housing prices peaked

A realtor sign is posted in front of a home for sale on May 28 in San Francisco.
(Image credit: Justin Sullivan/Getty Images)

Happy days are here again on Wall Street, and even some corners of Main Street — like the local realtors' office. On Tuesday, the closely watched S&P/Case-Shiller index of home prices was released, showing a 10.9 percent jump in 20 U.S. metropolitan areas between March 2012 and March 2013. That's the biggest increase since April 2006, a few months before housing prices peaked.

Adding to Tuesday's investor optimism, the Conference Board's newest consumer confidence index showed a better-than-forecast jump to 76.2, from 69 in April, suggesting that Americans are feeling more bullish than at any point since February 2008. Even Tiffany & Co. notched surprisingly strong sales for the first quarter of 2008. The Dow Jones industrial average soared 108 points to close at a new record high of 15,411.

Uh oh, says Wolf Richter at Testosterone Pit: "The good old days are back," but for those with short memories, those boom days were "during the last housing bubble, when money grew on trees." Look at where housing prices rose the most — Phoenix: 22.5 percent; San Francisco: 22.2 percent; Las Vegas: 20.6 percent. "I'm already hearing it again": You can't lose money in real estate. For heaven's sake: Even "flipping houses is back in vogue," Richter says:

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On NPR, an "economist" said that the housing market was "on fire." And everybody fingers the "tight" inventory — as hundreds of thousands of vacant and for-sale homes have evaporated, and as bidding wars are breaking out over what's left. Or so it seems. But vacant homes don't evaporate. Private-equity funds have poured tens of billions into gobbling up vacant single-family homes in specific markets. And now some of them are planning IPOs as a way of dumping this stuff into funds that unsuspecting worker bees hold in their 401(k)s. It's called an exit, and they have to do it before it blows up in their faces....

Everybody loves bubbles. People either don't remember the wealth destruction and wealth transfers that took place when the last bubble blew up, or they think they, but not others, can get out in time, whether it's through an IPO, a quick stock sale, or a real estate transaction. Governments love bubbles because they generate a flood of tax revenues.... It's an amazing show, with fireworks, suspense, dramatic plot twists, and a rousing score. And we get to watch it over and over again. [Testosterone Pit]

Yes, the rise in housing prices has "already ignited new talk of a housing bubble," says The Wall Street Journal's Real Time Economics blog, but "don't believe it." Sure, some regions have seen prices rise more than 25 percent from their post-bubble lows, but none of the 20 cities in the Case-Shiller index is back to its peak level, as Dan Greenhaus of equity trading firm BTIG points out. "Can home prices again be in a bubble and yet be 27 percent below their previous peak?" Greenhaus asks. "Perhaps, but we don't yet think so."

Look, says Ken Layne at Gawker, "real estate is a good investment as a place to live whenever it costs no more than leasing a comparable house or apartment." But "as soon as it costs more, you're buying in a bubble," and that's clearly true again in places like San Francisco, where the median house price just hit $1 million. New York, Los Angeles, and Washington, D.C., are in a similar boat, Layne says.

The only way a million-dollar median home price is sustainable, even in the very short term, is when you have an endless supply of six-figure, two-income earners who are willing to drain their 401(k) accounts and clip coupons just to have a modest house somewhat close to where they work....

We cannot seem to get out of the terrible loop from real estate bust to housing bubble. Playing the residential property market is the one drug addiction that's still socially acceptable. Despite what just happened a few years ago and is still lingering in much of the country, the housing boom is back. [Gawker]

The "housing bubble" talk is clearly back, "but only a few markets are at risk — so far," says Julie Schmit at USA Today. John Burns, the CEO of Burns Real Estate Consulting, notes that median housing prices were 3.2 times the median household income in April, below the 25-year average of 3.25. "There's zero case to be made that we're in a housing bubble," nationwide, Burns tells USA Today, though he acknowledges that San Francisco and Orange County, Calif., are "starting to look bubble-ish."

Real estate website Trulia agrees that some markets are now "overvalued" relative to fundamentals says USA Today's Schmit, but nationwide home prices are 7 percent undervalued. According to Trulia, "that makes today's price gains a rebound, not a new bubble," and the rebound seems healthy on the whole.

The pace of home price gains is expected to slow as more inventory becomes available, mortgage interest rates rise, and investor buyers slow down purchases, says Jed Kolko, Trulia's chief economist. Today's low mortgage interest rates and tight supply of homes for sale are "creating a kind of witch's brew of extreme price spikes," says Stan Humphries, Zillow chief economist. [USA Today]

On average, so far "we've rebounded to mid-2003 housing prices," says Matthew Yglesias at Slate. But here's the big takeaway from the new housing data: It "illustrates how problematic the idea of 'calling' a bubble is."

I know plenty of people who "called" the bubble in 2004, then looked silly for a couple of years, then looked super-smart as prices crashed for a few years, but who now look... I dunno. Prices have fallen only very slightly since that time and they're back on the rise. It could be that this is a bull trap and there'll be a whole secondary housing price collapse that brings us back down to 1990s levels. Or prices could rise a bit more and stabilize at 2004 levels. Financial markets are simply very hard to predict. Relative to rents, houses still look cheap in most markets, and that situation seems unlikely to persist. But whether that means rents will fall or housing prices will rise is very difficult to know. [Slate]

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Peter Weber

Peter Weber is a senior editor at, and has handled the editorial night shift since the website launched in 2008. A graduate of Northwestern University, Peter has worked at Facts on File and The New York Times Magazine. He speaks Spanish and Italian and plays bass and rhythm cello in an Austin rock band. Follow him on Twitter.