A financial bubble typically takes a very long time to re-inflate, but the strong rise in home prices is elevating concerns that another bubble is already forming in the real estate market.
Due to the nationwide rebound in home prices, several cities are approaching their bubble peaks of yesteryear. According to the latest sustainable home price update from Fitch Ratings, national home prices are approximately 17 percent overvalued. All of the top 50 most populous cities in the United States experienced home price growth in the past year for the first time since 2005, and the first time since 2000 when adjusted for inflation.
The highest growth rates were found in the western region, with many overvalued cities being located in California. Year-over-year growth rates in the San Francisco Bay area are at their best level in a decade. “Home prices in San Francisco have gone up over 20 percent year-over-year, the highest rate of increase than at any point in the last 10 years,” said Fitch Research Director Stefan Hilts. “In fact, San Francisco and San Jose will set new home price records in the next six months.”