I just got back from London, where I ran into a senior British official I hadn’t seen in some time. I asked him what was going on. “Another housing bubble,” he said, only half-jokingly. After being depressed for a few years, house prices in the English capital are rising at an annual rate of about ten per cent, and in some trendy areas the rate of increase is much higher than that. In the British media, there is already talk of the Bank of England raising interest rates sometime soon to head off another boom-bust cycle.
At least we don’t have that problem in the United States, I thought to myself. Or do we? At breakfast this morning, my wife informed me that our home, which we purchased a decade ago, in a gentrifying section of Brooklyn, has risen in value by another hundred thousand dollars. Over the past twelve months or so, prices on our once-modest street have jumped by about a third. And it’s not just brownstone Brooklyn. Listening to the radio the other day, I heard that in parts of Hoboken, across the Hudson in New Jersey, prices have jumped by forty per cent in a year.
Of course, the Brooklyn bubble—if that’s what it is—is a very localized phenomenon, and it’s partly a product of demographic shifts: sections of Brooklyn are turning into extensions of Manhattan. The further you go into the borough, though, the fewer signs you see of froth. In Bay Ridge and East New York, prices are rising at an annual rate of about five to ten per cent, according to the real-estate “heat map” on trulia.com. In Bensonhurst, Brighton Beach, and several other outlying neighborhoods, prices are falling. And for the New York metropolitan area as a whole, according to the widely watched S&P/Case-Shiller home-price indices, prices are rising at an annualized rate of less than five per cent.
Still, the fact is that real-estate inflation has returned to many parts of the country. According to the S&P/Case-Shiller index for twenty major cities, home prices rose by about thirteen per cent this year to August, which is a very rapid rate of increase, and one somewhat reminiscent of the bubble years—as the chart below shows. But, as in New York, there is wide variation. In Los Angeles, San Francisco, and Las Vegas, prices are rising at an annual rate of more than twenty per cent. In places like Boston, Charlotte, and Washington, the rate of appreciation is still below ten per cent.