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Bubble Watch: Top-Tier Home Prices Surge Past 2007 Levels

Earlier this year, prices for the Bay Area's most expensive homes hit and surpassed the previous highs of the 2007 housing bubble. Now, according to Standard & Poor's Case-Shiller Index, which just tallied the numbers from this spring, top-tier homes have soared past that mark to reach record levels, rising 7 percentage points above what they were during the last bubble. The Case-Shiller considers high-priced homes to be those that sell for more than $840,000, which puts them into the top third of house sales among the five-county region covered by the index. But we probably don't need to remind you that in the warped universe of the San Francisco market, Case-Shiller's top tier is just below average. As you recall, this spring the median house sale price in the city reached $1.1 million—putting much of San Francisco in the top tier.

The priciest homes had a significantly smaller bubble and crash than the ones in the lower tiers, which are still in the midst of recovering from the 2007 nosedive. The bottom third of home prices have risen a jaw-dropping 79 percent in the past two years, but that still puts them 28 percent below their past peak values. The middle tier has risen 51 percent, putting it 12 percent beneath its top.

The housing market recovery began in earnest back in 2012, and the Case-Shiller shows that high-tier home prices have risen 43 percent since that time. This meteoric rise is even steeper than those of previous bubbles, like the dotcom bubble of 1996–2001, when prices rose 100 percent in five years, and the 2002–2008 housing bubble, when prices went up 54 percent over six years. Based on the pattern of past cycles, there's no question that we are back in a bubble, but how long will this one last?

· Case-Shiller Home Price Index [Paragon Real Estate]
· San Francisco Median House Sale Price This Spring Was $1.1M [Curbed SF]
· SF Home Prices Surpass 2007 Peak Levels, Hit Record High [Curbed SF]