The Risk of a Bubble.(home prices)

The good news is that there is no evidence of a widespread bubble in home prices, though some regional markets are showing signs of trouble. The bad news is that there is a substantial risk that a home price bubble may be developing.

As The Wall Street Journal recently pointed out, home prices have been rising faster than personal incomes in many parts of the country in recent years. In the past two years, home prices have risen at triple the rate that household incomes have risen, according to an analysis done for the newspaper recently. In major metropolitan areas, the increases have been striking. In Miami, home prices have shot up by 58% while incomes have risen by just 16% since 1998.

Since 1998, Boston home prices have increased by 61.3 percentage points more than personal income. In New York, the differential is 51.3 percentage points; Fort Myers, Fla., 59.4 percentage points; San Diego, 59.8 percentage points; and Minneapolis, 28.3 percentage points.

The interesting trend is that there isn't much of one. Home price growth has exceeded income growth in just about every area of the country. That could point toward the possibility of a national price bubble that is at risk of ...