Another bubble? Nothing normal about housing rebound

Is some of our best economic news actually a cause for concern?

The local labor force shrunk about 2 percent last year. Unemployment is stubbornly high at more than 10 percent, and it's 20 percent if you include everyone who has given up looking for work. Economists and businesses are predicting sluggish hiring for 2013.

Yet the median price of a single-family home in Las Vegas increased 24.2 percent last year to $149,000, and price increases are expected to continue into the new year. The 44,902 homes sold in Southern Nevada in 2012 were the third-highest total on record.

Yes, the housing market fell into a canyon six years ago, and it's a long way back up. But there is nothing normal about this rebound. The question is whether it will lead to sustainable levels of home appreciation or another bubble that eventually bursts.

The driving force behind this round of rapid appreciation is a limited inventory of homes for sale. Inventory is limited because a new Nevada law - AB284, which took effect in late 2011 - makes it nearly impossible for banks to foreclose on homes. Notices of default slowed to a trickle last year, and as a result, bank-owned houses suddenly became a sliver of the shrinking resale market.

That made banks more willing to approve short sales - where lenders agree to accept less money than the seller owes. Last month, short sales comprised 45.8 percent of sales, their highest share ever. Foreclosures, which dominated the resale market just a few years ago, made up just 9.5 percent of sales in December. This trend is likely to continue into 2013 because Congress, as part of the "fiscal cliff" bill, extended tax relief for forgiven home debt through this year.

Investors are driving demand. Cash buyers still account for more than half of all sales.

As homes continue to appreciate because of these pressures, more underwater homeowners will be able to breathe again. But banks and investors will be paying attention, too. Eventually, more foreclosures will return to the market because banks will have their paperwork in order and won't take such large losses on their properties - tens of thousands of valley homes are at least 30 days delinquent on their mortgage. And at some point, no doubt, investors will decide to cash out on their gains and "flip" houses they've bought recently.

When inventory rises, will all the cash-paying investors still enter bidding wars for newly listed properties, or will they retreat until market forces push prices down?

Oh, for the days when jobs were behind housing demand. Employment remains the sure-fire fix for all that ails our economy, for all our uncertainty and instability. When any Nevadan who wants a decent job can get one, we'll know the housing recovery is real - unlike the frenzy we're seeing today.