S.F. housing market, other large metros showing signs of a bubble, expert says 

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  • Mike Koozmin/The S.F. Examiner
  • A real estate expert says conditions in many large cities, including San Francisco, point toward a housing bubble.

Dramatic gains in home prices in San Francisco and other large American cities point to a potentially new housing bubble in those areas, according to Robert Shiller, who helped create a closely watched gauge of U.S. housing prices.

Shiller said big price gains in Las Vegas, Los Angeles, San Francisco, Miami and Phoenix, fueled in part by a large influx of outside investor money, are a possible sign of trouble ahead.

"There is a risk of bubbles in these cities," said Shiller, a co-founder of the S&P/Case-Shiller Home Price Index. "House price increases have been dramatic. It looks like the beginning of the last bubble."

There is a risk that prices could rise for another year in these areas and then fall back, hurting newer buyers as they try and compete in markets where low inventory and all-cash Wall Street investors were pushing prices upward.

The latest Standard & Poor's Case-Shiller index report showed that prices of single-family homes in 20 U.S. metropolitan areas jumped 12.1 percent in April, marking the biggest annual gain in seven years. The gains were led by price increases of 24 percent in San Francisco, 22.3 percent in Las Vegas, 21.5 percent in Phoenix, 19 percent in Los Angeles and 13 percent in Miami.

The price gains were the latest sign that the U.S. housing market, a cornerstone of the American economy, may be in a sustainable recovery after the catastrophic property crash that triggered the 2008 financial crisis and subsequent deep recession.

Shiller said it is still too early to predict how healthy the housing recovery is, and he was unsure if prices overall would continue to rise after another year.

But a property crash was unlikely in the near term, he said, because lending rules have tightened and government oversight of the mortgage industry has been strengthened.

Average U.S. mortgage rates increased to their highest levels in two years this week, to 4.46 percent, according to Freddie Mac, the No. 2 home lending company, a potential break on house price increases.

But Shiller said there were clear signs of buying behavior in some major cities that pointed to a housing market that was already overheating, despite the 2008 crash.

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