Only a year after the housing market bottomed, “bubble” talk has surfaced as soaring, double-digit price gains sweep markets across the country.
An open house in Cheviot Hills—a neighborhood in West Los Angeles—attracted 150 people and brought in 14 bids before the home sold for 7 percent above the listing price at $2.9 million.
A loft in Manhattan’s SoHo district recently sold for $3.25 million after a bidding war pushed the price 10 percent above the asking price.
In Chicago’s Wrigleyville area, a two-flat greystone was bid up to $850,000, 6 percent above asking price, and sold to a single-family home converter who plans to add another floor and put it back on the market for $1.8 million.
“Prices in some areas are just out of control,” said Scott Tamkin, an agent with Keller Williams Realty in Los Angeles. “As soon as a good property comes on the market at a reasonable price—bam! It’s gone in multiple offers, often times in cash.”
U.S. home prices surged 12.1 percent in April from the same period a year ago, the biggest jump since February 2006 and the second straight month of double-digit gains, CoreLogic reported at the start of June.
Tight inventories, cheap money, and investor appetite are driving prices through the roof in some cities; particularly in hard-hit markets such as Phoenix and Las Vegas.
To be sure, not all areas are overheated nor have some even recovered since the downturn. But in most big cities, demand is hot, deals are quick, and many properties are getting bid up before selling for cash.
And even though home values are still a far cry from their peak in 2006, economists caution that prices in some areas have risen too far, too fast.
“It’s clearly not sustainable,” said Stan Humphries, chief economist at Zillow.
Wells Fargo Senior Economist Mark Vitner seconded that: “If investors don’t back off soon, it could lead to a bit of a price bubble.”
Prices have risen despite a lack of major improvement in fundamentals—namely jobs growth and incomes.
“Home prices need to moderate,” said Lawrence Yun, chief economist at the National Association of Realtors. “It’s bad news in terms of affordability and certainly not sustainable for prices to rise and incomes to lag.”