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Is a new bubble forming in housing?

(MoneyWatch) Home prices continued their upward climb in January, with the latest Case-Shiller numbers showing the highest annual increase since the housing bubble burst. Indeed, the price surge raises questions about whether another real estate bubble is starting to form.

Clearly, housing is recovering, but what kind of recovery is under way remains to be seen. Home prices have gone up for 12 straight months, growing 8 percent since last year and 1 percent alone from December to January. Those gains unlikely to be sustainable.

"As noted previously, the run-up in prices in the bottom tier of these markets is not necessarily cause for concern, since prices had fallen so precipitously during the downturn," writes economist Dean Baker in assessing the latest Case-Shiller figures. "However the rate of increase is alarming. Certainly this cannot be sustained for any substantial period of time. At the moment it is being driven in most of these markets by investor purchases. With rents in no way keeping pace, the fundamentals in these markets will not support much higher prices. This could end badly for homeowners who may again be buying into a bubble."

A number of factors are combining to drive prices upward. There is low inventory, but high demand. Sellers are waiting until prices have reached a threshold where they feel comfortable selling. Meanwhile, home buyers are hoping to take advantage of low interest rates and what in some markets are still-depressed home prices. Much of the rebound in prices is attributable to institutional investors piling into housing -- such players

make up a much larger share of buyers than they did years ago, or should in a normal market.

Industry observers hope that these factors eventually return to trend as the economy strengthens and home prices continue to rise. But if, say, sellers suddenly hit the market en masse and investor demand abruptly dries up, home prices could plunge.

Actually, we've already seen a drop in home prices during the recovery. Tracking the Case-Shiller data over the past decade, it's easy to see the huge trough where prices bottomed out in 2009. They began to climb roughly in 2010, only to fall again in 2011, though they never got anywhere near the bottom. In 2012, we saw prices climb again to their highest levels since 2002.

S&P Dow Jones Indices and Fiserv

Not surprisingly, the housing recovery is not affecting all parts of the country evenly. While all 20 cities the survey tracks saw increases in home prices, some areas saw huge leaps, while others haven't grown much at all. Areas that were hardest hit during the housing collapse saw the biggest gains. Phoenix posted the highest price gains, with a 23.2 percent increase year-over-year, followed by San Francisco at 17.5 percent and Las Vegas at 23.2 percent.

But other markets are still struggling, particularly in states that are still pushing through high levels of foreclosures. New York has seen a meager 0.6 percent increase in home prices over the past year, while Chicago saw just 3.3 percent growth. In fact, home prices in the Windy City dropped nearly 1 percent from December to January, the largest decrease of the cities Case-Shiller tracks.

Americans should expect this kind of uneven, up and down trajectory to continue -- after all, prices will not climb upward forever. What's more likely is a rocky recovery, where prices take two steps forward and one step back.

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