San francisco heading for a housing bubble?

Photo: JeffGunn

San Francisco could be headed for a housing bubble, according to experts, as properties becoming increasingly overvalued.

In fact, one-third of experts surveyed by Zillow says the market is already in a bubble, while a further 20 per cent believe the market is at risk of a bubble in the next year.

The survey, sponsored by Zillow and conducted by Pulsenomics LLCi, highlights a range of US housing markets where experts are concerned about expensive property prices.

The Bay Area is "very hot right now", says Zillow Chief Economist Dr. Svenja Gudell, noting that "home values may actually begin to fall somewhat... as more residents are priced out amidst rising affordability concerns, especially when interest rates rise".

"Whether those local conditions constitute a 'bubble' is up for debate, even among economists," argues Gudell. "Without 20/20 hindsight, it's difficult to identify bubbles as they're happening."

Some experts also said that bubble conditions are already present in Miami, Los Angeles, Houston, San Diego, and Seattle, while Boston is at "significant risk" of a bubble in the next three years.

Home values, though, are expected to gradually level off in the coming years, while general annual home price growth expected to average 3 per cent for the next five years - taking the national median home value to more than $215,000 by the end of 2020.

"The long-term outlook for U.S. home values has diminished to a three-year low, and a clear-cut consensus among the experts remains elusive, even at the national level," comments Pulsenomics Founder Terry Loebs. "Based on the projections of the most optimistic forecasters, home values nationally will increase 4.7 per cent next year and surpass their May 2007 peak levels in April 2017."

"The divergence of expert views regarding the existence of regional price bubbles and the path of future home values is a reminder that the U.S. housing sector has yet to fully heal more than eight years after the epic bust," Loeb adds.

Nonetheless, though, conditions are different to the last crash - not least because so many experts are now wary of potential bubble conditions. While prices have climbed extensively in certain hotspots, tighter lending restrictions today mean that buyers are not being given loans they cannot pay back.

"There's no real danger of a severe crash like the one we all remember from the last decade," adds Gudell.

Affordablity, though, could be another crisis all of its own.