Saturday, April 08, 2006

What Real Estate Bubble?

Is all the talk about a real estate bubble just a lot of hot air? For all the dire warnings that a pop may well be on its way, 2005 proved to be another record year for the housing market. Home prices rose 13% last year, according to a report released last week by the Office of Federal Housing Enterprise Oversight (OFHEO). What's more, last year's gains cap a five-year run-up in which home prices have soared 58%.

And the boom continued to be widespread. According to data collected from mortgages involving Freddie Mac or Fannie Mae, which OFHEO oversees, all but one of the 275 major metropolitan areas the agency surveyed showed rising values from 2004 to 2005. The most notable gains were in the Phoenix-Mesa-Scottsdale area of Arizona, where home prices have already almost doubled in the last five years. Last year, prices rose again by nearly 40%. Arizona's hot housing market helped push it, and its neighboring Mountain states — Colorado, Idaho, New Mexico, Nevada, Montana and Utah — to the top of OFHEO's list of fastest growing regions. The Pacific region — Washington, Oregon and California — came in next with regional prices increases of 18.75%. Home prices on the East Coast, in states from Maryland to Florida showed their fastest growth rate since 1975, jumping nearly 18%. The smallest gains continued to occur in New England and the Midwest, where prices still managed to increase by about 10% and 7% respectively.

So given all those encouraging signs, is it still likely that the real estate market's bubble will actually burst anytime soon? "The market's been incredibly strong," says OFHEO's chief economist, Patrick Lawler. "But the rises we've seen over the last couple of years just aren't sustainable."


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