An Exit Realty Consultants 'for sale' sign is displayed in front of a house in Stockton California, US
The housing crisis in America may finally be over, but the bill has yet to be paid © David Paul Morris/Bloomberg

James Jeddeloh, a 61-year-old consultant from Oregon, loves to play golf in Scottsdale, Arizona. So much so that last month the soon-to-be retiree decided to buy a house in the state that boasts 300 days of sunshine a year and turn his holiday destination into a home. But he is not the only one.

Since house prices bottomed out in 2012, homebuyers have rushed to snap up properties at depressed prices in one of the states hit hardest by the housing bust.

“I had been waiting for prices to reach rock bottom and stabilise. The market finally gained some sanity so it was time to get back in the game,” said Mr Jeddeloh.

In the past year, newly confident Americans – particularly families and retired people – bought homes after years of holding off, while investors, large and small, came in their droves looking to turn properties into rental housing.

Spurred by record low mortgage rates and an improving jobs market, homebuyers sopped up existing inventories. Price rises accelerated as homebuilders struggled to meet demand and banks sold fewer foreclosed properties. The question now being asked is this: is the US witnessing the creation of a new housing bubble?

Property research provider CoreLogic said its national home price index rose 10.2 per cent in February, the biggest year-on-year gain since March 2006, with Arizona among the states seeing the largest home price appreciation, up 18.6 per cent.

“Prices were up significantly, with a lot of the subprime properties off the market, so we had to strike while the iron was hot,” Mr Jeddeloh added. “We asked a friend to see the place for us and we put in an offer within 48 hours of the house going on the market.”

In order to get the best deals, homebuyers are participating in bidding wars, property agents are holding flash sales, investors are making all-cash offers and sellers are marking up homes week after week.

“If a house is priced well and in good shape it is not uncommon for buyers to bid 5 per cent over the asking price. We have to be aggressive,” said Jeff Sibbach, a property agent in Scottsdale. “Five out of seven of my clients are doing this.”

Even as thousands of homeowners are still trapped in negative equity, evidence of homebuyer exuberance for existing and new homes in pockets across the US has prompted concern among some industry watchers. These tactics, they caution, hark back to the frothiest months of the housing bubble in 2004-05.

Others are less worried. While more than a quarter of all homes were bought without any downpayment in 2006, almost half today are paid for in cash.

Although home prices have jumped year-on-year they are still way below their peak, as are levels of homebuilding. The median price for an existing single family home stood at $173,600 in February, still well below 2006 levels of $221,900, National Association of Realtors data show.

Houses are not only cheaper in absolute terms; they are also cheaper relative to incomes. With low mortgage interest rates, home affordability stands at near-record levels.

Even so, some say, affordability may evaporate when interest rates rise as gains in income have not kept pace with house prices.

“Current affordability is almost entirely dependent on low interest rates, and there’s no doubt that rates will begin to rise in the next few years,” said Stan Humphries, chief economist at Zillow, the online property database.

“This will have an undeniable effect on demand for housing, as homebuyers will have to spend more of their incomes to buy a home. Home values will have to either remain stagnant while incomes catch up or, quite possibly, fall in some markets. This will especially be the case in some markets that have seen strong home value appreciation.”

Such situations have worried those who are banking on the country’s housing recovery to boost the wider economy. Strong gains in housing starts have translated into positive contributions to gross domestic product from residential investment, and stronger home sales are leading to a pick-up in measures of house prices.

These gains have added $1.4tn to household wealth in 2012, and further appreciation this year will boost net worth by as much as $1.7tn, according to NAR forecasts.

“If the Federal Reserve starts tightening [monetary policy], home prices will suffer,” said Michael Gapen, senior US economist at Barclays. “Rising home prices boost household balance sheets, which will ultimately support consumption. For a long time the better performance of the S&P 500 was offset by declining household wealth, but now they are both pointing in the same direction, putting the consumer on a stronger footing.”

He added: “The question is how much carry over will housing have on the broader US economy?”

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