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A fast rise in U.S. home prices has some in the housing market murmuring the dreaded "B" word.
New numbers out this week only add to that "bubble" hypothesis. The nation's top 10 and top 20 market composites on the latest S&P/Case-Shiller Home Price Index recorded their highest annual growth rates since May 2006—up 8.6 percent and 9.3 percent respectively. (What is the Case-Shiller Home Price Index? Click here to read CNBC's explainer.)
"It is a solid rebound," said S&P's David Blitzer in an interview on CNBC. "I would not call it a bubble, but I'll admit a bubble is one thing you don't see when you're in it. You only see it after it occurs."
Looking back on the index, the biggest home price jumps were in 2004 and 2005, when values were up as high as 16 percent annually. Those prices were fueled by cheap and easy credit, which certainly does not exist today. They were also fueled by speculators who bought and flipped homes at a fast clip, putting no skin of their own in the game.
The concerns today are in certain local markets where gains in home prices look meteoric. In Phoenix, home prices rose 23 percent from a year ago, on the S&P/Case-Shiller index, but you have to put that in perspective. From the peak of the housing boom to the trough in August of 2011, home prices there fell a whopping 56 percent. They are still down over 40 percent from that peak, despite double-digit percentage gains.
On the other hand, some markets are nearly back to their housing boom peaks, only because they didn't boom all that much back then. Dallas home prices fell 9 percent peak-to-trough and are now just 2 percent below their peak in April of 2007. Does that make Dallas a bubble market and not Phoenix?
It all depends, again, on what is driving the gains. Dallas, and much of Texas for that matter, is seeing strong employment growth and an influx of companies and workers to the state. Phoenix is seeing a better employment picture, but the gains in home prices can be attributed largely to investors who came in and bought up an enormous supply of distressed properties. Phoenix was foreclosure-central due to heavy overbuilding during the housing boom.
The difference this time around is that the investors are not flipping homes, they are holding them to rent. They are also using mostly cash, and therefore they have all their skin in the game.
The reason prices are rising so fast? There is very little to buy and demand is coming back. Inventories are down significantly across the nation and even in the supposedly busy spring season fewer new listings are coming on than the normally do this time of year.
"From my perspective prices have not gotten out of line with incomes yet," said Eric Belsky of the Harvard Joint Center for Housing Studies. "When you look at the extent to which prices fell and they've come back, while some of the double digit gains are sort of eye popping, both the fundamental price to income level and when you layer in mortgage interest rates, I don't see any market being that frothy or that inflated now."