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NewsMine economy united-states 2002-wrapup Viewing Item | Housing bubble Original Source Link: (May no longer be active) http://news.yahoo.com/news?tmpl=story2&ncid=&e=5&u=/usatoday/20021216/bs_usatoday/4703433http://news.yahoo.com/news?tmpl=story2&ncid=&e=5&u=/usatoday/20021216/bs_usatoday/4703433
Business - USA TODAY How housing bubble grows -- and bursts Mon Dec 16, 7:30 AM ET Add Business - USA TODAY to My Yahoo!
Jim Hopkins USA TODAY
San Francisco and Silicon Valley are among about a dozen areas across the USA where home prices have climbed so high that some real estate and economics experts fear real estate bubbles are possible. USA TODAY looks at how bubbles bloom -- and burst.
Q: What's a housing bubble?
A: Bubbles develop when prices climb above what economic and demographic conditions can support. Buyers believe future prices are headed up, so they bid prices to unrealistic levels.
Q: What pops bubbles?
A: A sudden drop in demand. It takes more than a recession to burst bubbles, says Ken Rosen, chairman of the Fisher Center for Real Estate at the University of California at Berkeley. They often also need a sharp rise in interest rates and foreclosures.
Q: How likely is a nationwide bubble?
A: Not very. Despite five recessions, median prices for single-family homes across the USA have climbed every year since 1972. Past bubbles have mostly been regional -- in East and West coast communities with dense populations, scarce land, high construction costs and restrictive zoning.
For example, prices fell 25% in Boston in the late 1980s and early 1990s.
Q: Are there bubbles right now?
A: No, according to many real estate experts. But there are worrisome signs.
Most experts attribute current price increases to record low mortgage rates, a housing shortage in major metros and buyers' belief that stocks are crummy investments.
Q: The worrisome signs?
A: Home foreclosure activity is up and the pace at which home prices are rising nationally is expected to decline.
* Nationally, a record 1.2% of mortgages were in the foreclosure process at the end of the second quarter, the most recent Mortgage Bankers Association of America figures show. That's the highest in 30 years, the trade group says. Fewer than 1% were in foreclosure a year earlier.
In the Bay Area, the number of mortgage default notices -- the first step toward foreclosure -- has risen in 11 of the 19 months since the recession began in March 2001, researcher DataQuick says.
* The National Association of Realtors projects a median price of $157,200 for 2002. That would reflect a 6.4% increase from 2001. NAR projects a 4.2% annual increase in 2003.
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