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ARE HOUSING BUBBLE FEARS CREDIBLE? Fitch Ratings warns home prices nationally are already 17% overvalued. Fitch Ratings unabashedly stated in a recent report a fear that has been whispered across the industry for the past several months—a looming price bubble may be forming in some markets. National home prices are 17 percent overvalued, and current levels of price appreciation in some areas of the country are unsustainable, according to Fitch. "Fitch identifies a bubble risk in continuing price rises and sees several factors which could halt or even reverse recent gains in the market," Fitch stated in its quarterly U.S. RMBS Sustainable Home Price and Economic Risk Factor Report. Rising prices and interest rates threaten affordability, and investors may be creating an illusion of demand that does not exist, the agency warns. "Having avoided the worst of the downturn, but participating fully in the drastic growth of the past year, much of coastal California is now approaching the peaks of home prices seen during the expansionary bubble of the early 2000s," Fitch said. Fitch identified the San Francisco Bay Area as experiencing "the largest unchecked growth" in the nation. If prices in the California metro continue their current rate of appreciation, they will "eclipse 2006 levels within six months," Fitch stated. Prices are already 30 percent overvalued in the region, according to the ratings agency. Furthermore, Fitch points out investors have contributed considerably to recent buying activity. In fact, cash purchases—often an indicator of investor activity—are almost 50 percent of home A recent poll by the financial services firm Country Financial found that 48% of Americans believe the market could reach "bubble" status within the next two years. sales transactions in the Bay Area. "[T]he concern is that housing prices are being driven up more through speculative buying than from an increasing base demand," Fitch said. On the other hand, Fitch did reveal some good news in its report, including "signs of a strengthening economic recovery" with momentum that "continued to trend in a positive direction" across the nation. Also, while coastal California markets may be approaching a bubble, other markets are showing sustainable price growth. "Amongst the 10 cities that saw the largest declines from the 2000s peak to their post-crash values, home price growth over the past year has averaged nearly 20 percent, twice the national average, with nearly all of this growth seen as sustainable," Fitch said. KNOW THIS The S&P/Case-Shiller Home Price Index rose in August at its fastest annual rate in more than six and a half years. DESPITE SLOWDOWN, HOME PRICE GAINS OUTPACE LAST YEAR JACK O'BOYLE & ASSOCIATES "Jack O'Boyle & Associates is a full service law firm meeting the legal needs of the default servicing industry. As a boutique firm we are able to provide both top quality and highly personalized service to our clients." TEXAS » NATIONWIDE OUTSOURCING JACKOBOYLE.COM » 1-866-562-0653 40 LPS' Mortgage Monitor looked at residential real estate transactions through August. While home price appreciation is beginning to show signs of seasonal slowing, the company says the pace of price gains in 2013 remains greater than it was in 2012. LPS also reports, year-to-date (YTD) through August, home sales reached their highest level since 2007. Distressed sales— REOs and short sales—continue to make up a smaller percentage of overall transactions, comprising 19 percent of total home sales YTD in August. That's down from 20 percent for all of 2012 and 33 percent in 2011. Among distressed sales, short-sale volumes accounted for 46 percent of transactions—a declining share, but still historically high, LPS says. The short-sale percentage hit a high point of about 58 percent in late 2012, according to LPS' report.