Friedman, Billings, Ramsey & Co., Arlington, Va., believes that the number of cities facing home price bubbles increased 55% in the first quarter compared to research it conducted last year.In a just released, updated report on housing bubbles, FBR says 42 cities (urban areas or "UAs") are at risk compared to 27 identified in an earlier report. FBR economist Michael D. Youngblood says the UAs are overpriced based on per capita personal income compared to the median home price. Nine of the top 10 UAs most likely to burst are in California and 27 of California's 28 UAs have home prices that are bubbles waiting to burst. However, Mr. Youngblood cautions that he does not expect the bubbles to burst in any UA until economic activity contracts for a minimum of four quarters. Mortgage lenders have been criticized for fueling high prices by offering interest-only and payment option loans that allow consumers to make low monthly payments at the expense of building equity.
