Is the real estate bubble going to burst?

In an article written Kenneth Harney, the possibility of a nationwide real estate bubble is discussed. The concern is that real estate markets in California, Nevada, Florida, New England and the mid-Atlantic states have doubled in price over the past 5 years. One question is whether an increase in investor speculation (non-occupant investors) in homes and condos is a sign of a top in the market. Another concern is the recent surge in interest-only loans, which enable a borrower to buy a more expensive home than that they could with a conventional loan. Apparently, back in 2001, interest-only loans only accounted for 1% of loans nationwide but now in hot markets like San Diego, Las Vegas, and Miami, lenders are seeing interest-only loans account for between 10% - 15% of all loans.

"In a new statistical research study, economist Michael Youngblood identifies 27 local housing markets that have reached the bubble stage. Youngblood, who works for Friedman, Billings, Ramsey & Co., an investment-banking firm based in Arlington, Va., defines bubble markets as those where per capita income growth rates severely lag housing price growth and are seriously out of sync with historical price-to-income norms."

Most of these "bubble" markets seem to be in California cities but others are in Boston; New York; Honolulu; Boulder, Colorado; Danbury, Conn., and Bellingham, Wash. The good news is that this economist also says that it would take four straight quarters of economic recession to cause a housing price bust, of which none of the 27 has logged even one quarter of recession.

However, the answer to all of these questions will be revealed when only a very small percentage of potential buyers can actually afford the going prices. Until then, looks like prices will keep movin on up.