Some Areas Recording Record Home Prices

Industry experts worry that low interest rates may be distorting home prices.

December 31, 2013

NEW YORK – Seven years after the U.S. housing bust, some American cities have rebounded and are registering record home prices, the Wall Street Journal reports.

Prices have reached record highs in 10 of the nation’s 50 largest metropolitan areas, according to an analysis of price data from online real-estate information service Zillow.

On a national level, prices remain below their highs of the past decade, and many of the cities realizing new highs escaped a boom and bust. Meanwhile, in some areas that experienced a bust, low interest rates have boosted prices, sparking concerns that prices could again be overvalued.

Experts say such trends highlight the uneven nature of the U.S. housing recovery.

"The main story in a lot of these places is that they didn't have much of a housing recession. It's much easier to be back at peak levels when you didn't have a big boom and bust," said Stan Humphries, chief economist at Zillow, adding he was surprised that areas that experienced a downturn have returned to peak levels so quickly.

The 10 metro areas enjoying record prices are “largely exceptions,” the WSJ notes, pointing to 1,500 cities whose values are still at least 25% lower than their previous highs.

Nationally, home values are 16.3% below the high of the last decade, according to Zillow.

A strong concern among industry analysts is the role that low interest rates may have played in distorting prices. The low rates have helped make homes affordable, which will become less so once mortgage rates rise — especially if home prices escalate.

"What you've got is something other than a sensible market-deciding price. You've got it goosed by the terms of finance, which are extraordinary," said Robert Albertson, chief strategist at Sandler O'Neill + Partners, an investment-banking firm in New York. "Prices shouldn't be up this high, this quickly. It's a big, flapping yellow flag saying we're back in territory that we should not be in.”

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