The Federal Reserve Bank’s Dallas branch has cautioned of a “brewing US housing bubble,” saying that prices have surged beyond levels acceptable by market fundamentals, pointing at a risk of a market collapse.

“There is growing concern that US house prices are again becoming unhinged from fundamentals,” Fed economists said in a research report posted earlier this week. “Our evidence points to abnormal US housing market behaviour for the first time since the boom of the early 2000s,” they added.

The boom preceded a market bust, triggering the 2007-2009 global financial crisis. However, if the current bubble bursts, it wouldn’t likely cause as much economic fallout because consumers aren’t as financially overextended as they were in the early 2000s, and excessive borrowing doesn’t appear to be fuelling the current price rally, the Fed said.

Home prices continue to rise even now. Based on NY Rent Own Sell research, house prices have climbed by about 15% over the past year. The fact that houses are now so expensive is simply the outcome of the supply and demand problem.

Buyers are betting that prices will always rise, just as they did in the early 2000s, so they must compete for the homes available or miss out on the real estate wave. Higher prices “may have fuelled a fear-of-missing-out wave of exuberance involving new investors and more aggressive speculation among existing investors,” the Fed said.
-RT