Trulia: Home Price Recovery Not Shaping into Another Bubble

While home prices are rising today nearly as fast as they did during the peak bubble years of 2005 and 2006, ""Trulia"":http://www.trulia.com/ reassures ""bubble-phobes"" that they can rest easy in its latest report.

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The company tossed its two cents into the bubble debate with the release of Trulia Bubble Watch, a report that compares various price indexes (including Trulia's own Price Monitor) to per-capita income and rent data obtained from government releases.

According to Trulia's findings, home prices are still 7 percent undervalued nationally, having come down from a peak of 39 percent overvalued in 2006. After the bubble burst, prices fell to being 15 percent undervalued at the end of 2011.

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With prices still undervalued relative to fundamentals, Trulia insists that today's rapid improvements still qualify as a rebound, not a new bubble.

""Home prices fell so much after the last bubble burst that they still remain below normal levels even as prices rise sharply today,"" explained Trulia chief economist Jed Kolko. ""Several forces are waiting in the wings that should slow down today's rapid price gains before they rise into bubble territory again. More inventory, higher mortgage rates, and fading investor activity would each take home-price gains down a notch.""

That said, it's still important to remain cautious. According to the report, eight of the country's 100 largest metros are showing evidence of overvalued prices, including four in California (including Orange County, Los Angeles, San Jose, and San Francisco) and three in Texas (Austin, San Antonio, and Houston).

""Although we're far from bubble territory today, there'll be another home-price bubble someday, somewhere,"" said Kolko said. ""The history of American real estate is full of speculation, bubbles, and busts. Even now, most people expect home prices to get back to the peak of the previous bubble again in the next 10 years. Prices may be far from bubble levels today, but we need to stay on guard for signs of the next bubble.""