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Report: Housing Bubble Fears May Not Be Unfounded

""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp Wednesday stated unabashedly a fear that has been whispered across the industry for the past several months--a looming bubble in some markets.


National home prices are 17 percent overvalued, and current levels of price appreciation in some areas of the country are unsustainable, according to Fitch.

""Fitch identifies a bubble risk in continuing price rises and sees several factors which could halt or even reverse recent gains in the market,"" Fitch stated in its quarterly _U.S. RMBS Sustainable Home Price and Economic Risk Factor Report_ released Wednesday.

Rising prices and interest rates threaten affordability, and investors may be creating an illusion of demand that does not exist.

""Having avoided the worst of the downturn, but participating fully in the drastic growth of the past year, much of coastal California is now approaching the peaks of [COLUMN_BREAK]

home prices seen during the expansionary bubble of the early 2000s,"" Fitch said.

Fitch identified the San Francisco Bay Area as experiencing ""the largest unchecked growth"" in the nation. If prices continue their current rate of appreciation, they will ""eclipse 2006 levels within six months,"" Fitch stated.

Prices are already 30 percent overvalued in the region, according to Fitch.

Furthermore, Fitch points out investors have contributed considerably to recent buying activity. In fact, cash purchases--often an indicator of investor activity--is almost 50 percent in the Bay Area.

""[T]he concern is that housing prices are being driven up more through speculative buying than from an increasing base demand,"" Fitch said.

On the other hand, Fitch did reveal some good news in its report, including ""signs of a strengthening economic recovery"" and ""momentum continued to trend in a positive direction"" across the nation.

Also, while coastal California markets may be approaching a bubble, other markets are showing sustainable price growth.

""Amongst the 10 cities that saw the largest declines from the 200s peak to their post-crash values, home price growth over the past year has averaged nearly 20 percent, twice the national average, with nearly all of this growth seen as sustainable,"" Fitch said.


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