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Another Housing Bubble? Recovery Shows Dangerous Signs, Reports Say
Home sales recently have been the strongest we've seen in a long time (though they are expected to temper in January due to a normal winter slowdown). All of that sounds great, but here's the problem: It seems to be mostly smoke and mirrors.
As CNBC reported, the jump in home prices is on an upward trajectory as dramatic as it was in the boom years. Prices soared 7, 8 and 12 percent year-over-year in the early 2000s, prompting experts to scream that the huge leaps were unsustainable. As we all know, the crash hit shortly thereafter. Now, though home prices are still down by double digits from where they were, the shoot up is happening at a similarly fast and furious pace. Conditions like these are what set us up for the last housing bubble to burst. The question now is: Are we heading for another housing bubble (that will inevitably pop)?
There's another factor that is also a cause for concern. As David Stockman, former director of the Office of Management and Budget under President Reagan, told Yahoo! Finance, a disproportionately large chunk of home sales has been driven by investors buying up distressed properties and betting on being able to flip them for big profits once prices rise further. But the everyday homebuyers (first-time buyers and buyers trading up for larger properties) that investors would need to sell to have been mostly staying out of the real estate market. Financial hardships, continued unemployment (albeit improving) and other factors are keeping them on the sidelines. So when prices reach a level where investors are ready to sell, there may not be many buyers to sell to -- and that could be disastrous for home prices once again.
"I would say we have a housing bubble again," said Stockman, who recently has been working in the private equity sector. "We don't have a real organic sustainable recovery because, in a world of medicated money by the central bank, things aren't what they appear to be. ... It's happening in the most speculative subprime markets, where massive amounts of 'fast money' is rolling in to buy, to rent, on a speculative basis for a quick trade. And as soon as they conclude prices have moved enough, they'll be gone as fast as they came."
Original Content by Graham Wood for AOL Real Estate