RACHEL MARTIN, HOST:
It's been about 10 years since the housing crisis started. Home prices now are back up, even breaking records in some parts of the country. But is the market perhaps overheating? Here's Stacey Vanek Smith from Planet Money's Indicator podcast.
STACEY VANEK SMITH, BYLINE: The Lewis Group of Companies is based in California. They build planned communities and shopping centers. And a lot of their business is in Riverside and San Bernardino - two places that were very hard-hit by the housing crisis. Randall Lewis is a partner in the Lewis Group. He says in the last couple of years, there's just been a transformation in his business.
RANDALL LEWIS: There's been a really strong pickup. And here, there's almost been a triple pickup. And I think most people think that in most markets we're back to peak pricing.
VANEK SMITH: The housing market has made a strong recovery all over the country, which has a lot of people asking one question.
EDWARD GOLDING: We kept on being asked, are we in a bubble? And we wanted to bring some data and analysis to it.
VANEK SMITH: Edward Golding is with the Urban Institute's housing finance center. And to answer this question, Ed and his colleagues looked at cities across the U.S. to see how fast housing prices were increasing. Since 2012, house prices have increased a lot - about 34 percent faster than the prices of almost everything else. But that is still way below what was happening back in the bubble days. Between 1997 and 2006, house prices outpaced inflation by 84 percent. So after looking at prices, Ed and his team asked one key question.
GOLDING: Is the area affordable? The bubbles are when you're getting away from the fundamentals - when the demand is sort of outstripping the supply, but that demand can easily disappear.
VANEK SMITH: Ed and his team found that, nationally, the median household can afford the median house. So overall, housing in the U.S. is affordable, and that was not the case back in 2006.
GOLDING: Nationally, there's really no sign of a bubble. But as real estate is local, we tried to focus on a few metropolitan areas that at least bore watching.
VANEK SMITH: In other words, there's no national housing bubble, but there are, you know, baby bubbles.
GOLDING: I'm not using the bubble word. These are just cities that, based on our measure, show lack of affordability and a rapid rise in house prices. Many...
VANEK SMITH: OK, so this isn't a bubble. This is just a little overheated maybe.
GOLDING: These are things - things are places to keep an eye on.
VANEK SMITH: These are places where housing is just way more expensive than the average resident can afford. Top cities - the top baby bubbles - were San Francisco and San Jose. In San Francisco, the Urban Institute concluded fewer than a quarter of local residents could afford to buy a home. Miami, Portland, Seattle and Los Angeles showed similar numbers, and so did Riverside, Calif., where developer Randall Lewis has seen business triple over the past couple years. And I asked Randall if this worried him.
LEWIS: Look, I remember going to a conference, and someone said the four most dangerous words in real estate are this time it's different.
VANEK SMITH: (Laughter).
LEWIS: And so I don't want to say that it's different now, but I think there are at least some differences that probably will allow us to keep going with a strong market for a while.
VANEK SMITH: Randall says he is seeing a diverse group of buyers across different industries, ethnicities and incomes. And he says there's been a little boom of millennial couples coming to Riverside and San Bernardino to buy homes. Stacey Vanek Smith, NPR News.
(SOUNDBITE OF PARA ONE'S "NEON (REPRISE)" Transcript provided by NPR, Copyright NPR.