A tale of two housing bubbles

It should be familiar, because it was only six years ago when, in 2007, the subprime-mortgage industry Armageddoned as home-foreclosure rates exploded. Wall Street, whose firms were peddling bogus mortgage-backed securities, lost hundreds of billions of dollars. Hello, global recession. These were dark times.

The bubble that blew the world economy initially went unnoticed. Beginning in the late '90s and ending in 2006, Sacramento and the rest of the nation witnessed an unprecedented upsurge in home values. Financing was available to anyone and everyone—even if you had no money for a down payment or didn't have a job. New-home sales doubled in a decade's time. More families than ever withdrew mortgage equity from their homes.

Then, pop!

Fast-forward to 2013, and this minibubble is slightly different. There's a dearth of homes on the market, especially options for first-time buyers. Investors, such as Blackstone Group LP, pay cash to swoop up thousands of local properties, which they're renting out while waiting for values to climb higher. Banks also have a few thousand local homes in their cache. And new-home construction is slowly, inch by inch, recovering.

As supply dwindles, interest rates hover around 3.5 percent, because the government continues to pump money into treasuries. Potential buyers urgently want to lock in the good rates. Demand is very high.

The result is that home prices continue to artificially rise. And not just tiny upticks: The median home price in Sacramento surged from $189,000 in October 2012 to nearly $220,000 in March of this year, an increase that more than mirrors the unprecedented growth during last decade's housing boom.

Enter “Housing Bubble 2”—a miniature, hiccuplike version of last decade's boom that blew up all over America.

Yes, gone are the days of subprime mortgages—only 6 percent of U.S. loans are zero-down—and more than 40 percent of U.S. sales are now paid in all cash.

But the problem is that as supply remains shallow, home values could unnaturally rise too high. There's a hunger for some big numbers—real-estate agents itching for paydays, lenders peddling refinancing, sellers emerging from underwater—that surely exacerbates this inflation.

The fear is that when these investors unleash their “shadow inventory” of homes, or builders reignite construction, a deluge of supply will put a new generation of first-time homebuyers underwater. And forestall economic recovery. And so on. All over again.

We've heard that sound before: pop!