It seems absurd, but a few short years after the biggest home price crash in memory, soaring prices are stoking fears -- or at least stirring talk -- that another housing bubble is forming in the Bay Area.

That has some buyers skittish and others dropping out of a market that favors cash offers and whopping over-asking-price bids.

"It's back to the bubble," said Janine Epstein, a San Jose schoolteacher who is having trouble finding a condominium or townhouse she can afford.

"I don't want to jump in and watch all the prices go down, and at the same time, I don't want to not jump in and watch the prices keep going up," she said.

Not everyone is convinced, and bubbles are devilishly difficult to spot when in the middle of one. But there are warning signs, housing experts say.

Across the nine-county Bay Area, cash buyers accounted for nearly 28 percent of May sales, according to the real estate information company DataQuick, far above the historical average of 13 percent. That's a potential worry because with no constraint by a lender on how much they can pay, these buyers are rapidly bidding up prices. Prices jumped 17 percent from March to April for all types of Bay Area homes, the highest monthly percentage increase since the company began tracking the information in 1988.

"Are there significant risks for anyone getting in the market now?" said DataQuick's Andrew LePage. "Absolutely. Take away any one of three things -- ultralow rates, ultralow supply and ultrahigh investor levels -- and the market's going to feel it."

A bubble is defined by a large run-up in prices for an asset beyond the actual value of the asset. Bubbles are usually followed by a collapse in prices back to, or below, their true values.

For some time, the region has been one of the hottest housing markets in the country. In Silicon Valley, offers of $200,000 to $400,000 above asking price are not uncommon. Some communities in the heart of Silicon Valley -- Cupertino, Palo Alto, Burlingame and Menlo Park -- are back to near or above the prices they hit before the last bubble burst.

Even low-price homes in Alameda County and Contra Costa County are drawing multiple bids, many from investors.

"Is it a bubble? Anybody who tells you they know where the market's going be in six to 12 months is blowing smoke," said Arn Cenedella, a Menlo Park agent who has sold Peninsula real estate for 35 years.

But there's evidence debunking the bubble theory.

Across the nine-county Bay Area, cash buyers accounted for nearly 28 percent of May sales, according to the real estate information company DataQuick.
Across the nine-county Bay Area, cash buyers accounted for nearly 28 percent of May sales, according to the real estate information company DataQuick. (Paul Sakuma / AP file photo)

Home prices in Silicon Valley are about 3 percent above their "fundamental value," determined by incomes, rents and long-term trends, compared with 59 percent above the value during the bubble in 2005, according to Jed Kolko, chief economist at the online real estate company Trulia. In the San Francisco metro area, including San Mateo and Marin counties, prices are 2 percent above, compared with 52 percent in 2005. In the East Bay, home prices are even with fundamental values, compared with 73 percent above them in 2005.

At $564,250, the median sales price of an existing single-family Bay Area home in May was 23 percent below its 2007 peak of $738,500 just before the crash, according to DataQuick.

"The market is coming back, but it's not coming back as robustly as some people think it is," said Contra County Assessor Gus Kramer. "I don't think there's a bubble per se, because the number of sales are not even close to what they are in a normal market."

But, he said, buyers should be careful about purchasing a house in some neighborhoods where prices have soared based on a few sales over asking price.

The Peninsula and South Bay have regained most of their post-bubble losses, while Contra Costa and Alameda counties have a long way to go.

Interest rate increases will eventually put downward pressure on Bay Area prices, warned Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.

"None of us knows what will happen to us in the future, but if you're not moving (to the Bay Area) with the expectation you will be there a long time, you very likely are going to be a loser," Baker said.

The current buyer frenzy has several ingredients: interest rates kept low by the Federal Reserve; a low inventory of homes for sale; high rents relative to home prices; rising incomes and job security; and investors and others paying cash for low-end houses and condominiums.

Investors aren't giving up yet. "This is definitely not a bubble," said Geraldine Barry, who publishes a magazine for real estate investors. "I think the market is looking good and will continue to appreciate for the next couple years."

One aspect of the current housing market makes another collapse in home prices unlikely, according to Leslie Appleton-Young, chief economist for the California Association of Realtors.

"The difference between today and 2006," she said, "is that there are almost no no-money-down purchases now, and there are many, many cash sales. If somebody pays cash for their house or puts 40 percent down, when the market goes down 10 percent, they're not going to sell."

Economist Ken Rosen of the Rosen Consulting Group in Berkeley expects the price increases to slow when interest rates rise and when more homes come on the market in response to higher prices.

If prices do sag again, it will be the "flippers" -- investors who buy houses to fix up and resell -- who will feel the pain, said Stan Humphries, chief economist at online real estate service Zillow.

"Speculators and short-term homebuyers could be hurt by that emerging bubble," Humphries said. "Anybody buying for 10 years is not going to be affected."

Contact Pete Carey at 408-920-5419. Follow him at Twitter.com/petecarey.