Home prices continue to surge, with gains in West sparking bubble concerns

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Home prices posted a second consecutive quarter of strong gains during the three months ending in September, with home prices in the S&P/Case-Shiller 20-city composite index growing by 13.3 percent from a year ago — the strongest annual growth since February 2006.

Twelve of 20 markets tracked in that index showed double-digit annual gains, with markets in the West continuing to show the strongest growth. Home prices were up 29.1 percent in Las Vegas, 25.7 percent in San Francisco, 21.8 percent in Los Angeles, and 20.9 percent in San Diego.

The S&P Case-Shiller U.S. National Home Price Index. which tracks prices in all nine U.S. Census divisions, was up 3.2 percent in the third quarter and 11.2 percent over the last four quarters.

With the proportion of homes in foreclosure continuing to decline and consumers’ balance sheets strengthening, the question in the longer run is whether household formation continues to recover, and if homeownership will return to the peak levels seen in 2004, said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, in a statement.

“The strong price gains in the West are sparking questions and concerns about the possibility of another bubble. However the talk is focused on fear of a bubble, not a rush to join the party and buy,” Blitzer said. “Moreover, other data suggest a market beginning to shift to slower growth rather than one about to accelerate. Existing-home sales weakened in the most recent report; home construction remains far below the boom levels of six or seven years ago; and interest rates are expected to be higher a year from now.” Source: spice-indices.com