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Boston among metros that experts worry are headed toward a housing bubble

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It’s hard to predict, or even define, a housing bubble. But Zillow’s latest quarterly survey might raise some eyebrows.
It’s hard to predict, or even define, a housing bubble. But Zillow’s latest quarterly survey might raise some eyebrows. Michael Dwyer / AP

There is no set definition of a housing bubble, and it’s a notoriously difficult thing to predict, but a number of experts think Boston could be heading toward one in the next few years.

In a recent survey, Zillow asked 66 housing experts about the potential for real estate bubbles in 20 major cities. Twenty-one of the survey respondents believe Boston is at “significant risk’’ of reaching a bubble in the next three to five years, putting among the most at-risk cities for that timeframe.

Zillow Chief Economist Dr. Svenja Gudell said that although economists disagree about how to define a housing bubble exactly, basically it is when “home values go up and then they drop down.’’

It is hard to determine if a city is truly in a bubble, but Gudell said that economists look at things like the price-to-income ratio, affordability, price to rent, the mortgage market, the number of foreign buyers, and anything that “doesn’t seem normal supply and demand driven.’’

“When you have factors that don’t make sense anymore then you might think we would be in a housing bubble,’’ she said.

Okay, so what about Boston?

Gudell said Boston has a few red flags, as home values are up 8.5 percent in the last year and people are spending a lot of their income on their home.

“You see low inventory,’’ she said. “You see a competitive market and it feels like an active market, but on my side I don’t think Boston is quite there in terms of bubble.’’

Only one expert said Boston is already in a real estate bubble, and 14 said the city is not at significant risk of entering one, even in the next five years.

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Massachusetts towns and cities where homes are selling really fast:

Gudell said most markets, including San Francisco, where home values have increased by double-digit percentages this year, are slowing down a little bit. Twenty-two experts said San Francisco is already in a housing bubble.

“We have been seeing a bit of a slowdown already,’’ Gudell said. “Even six months ago it was moving quicker than it is now.’’

Boston home values are only supposed to increase about 2.7 percent in the next year, and Gudell thinks this slowdown is a good thing.

“You want things to be more sustainable and make it easier for buyers,’’ Gudell said.

But she also noted that Boston is tough – building costs are high and there are restrictions in place, not helping the already low supply of housing.