Rising home prices worry some experts

California’s red-hot real estate market has UCLA economists seeing trouble. Concerned that home prices are rising, not dropping as they normally do when mortgage rates rise, the UCLA Anderson Forecast last week warned, “It currently appears that a gap is forming between housing prices and their true fundamental value.”

The rush of home buyers to purchase when rates rose in July and August has helped to drive up prices. The median price of a Southern California home was $333,000 in October, up 20% from a year earlier, according to DataQuick Information Systems.

The university’s quarterly report also noted that more home buyers will be at risk as interest rates rise -- adjustable-rate mortgages made up 25% of mortgage activity nationwide over the past three months, up from the typical share of 15% to 16%.

“Right now the warning flags are starting to fly. If the market does not cool in the next few months, there is a distinct possibility of a new housing bubble forming in the Southern California housing markets,” said the widely followed report, which listed the overvaluation of housing prices at between 10% to 15% as of October.