Federal Reserve Chairman Alan Greenspan sees signs of "froth" in some local housing markets, but says overall the nation doesn't appear...

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NEW YORK — Federal Reserve Chairman Alan Greenspan sees signs of “froth” in some local housing markets, but says overall the nation doesn’t appear to be in a housing bubble that could potentially burst.

Such a sanguine prediction might do little to calm the nerves of anyone who remembers when the dot-com stock boom went bust five years ago and how that led to a marketwide bloodbath.

Investors lost wealth they have yet to recover, and Wall Street’s collapse played a key role in pushing the economy into a recession.

That’s something for homeowners today to consider. It could be that even if there isn’t a housing bubble in their back yard, they may still get caught if demand slows elsewhere.

That “if” is the big unknown these days. Among economists, homeowners and market-watchers, there seems to be a wide range of opinions over whether the housing market has spun out of control.

Recent data show the market accelerating rapidly. Home prices overall have jumped 12.5 percent during the 12 months ended in March. Sales of new homes in May climbed to the second-highest level in history, providing further evidence that low mortgage rates continue to fuel a booming housing market.

The “froth” shows up in pockets around the country where prices are soaring beyond the average. New research by Merrill Lynch looked at the housing markets in 52 large cities and found that 30 of them had signs of overheating.

Topping that list: Miami, where home prices have jumped 85 percent since 2001 and price-to-income levels are soaring. Six cities in California — San Diego, Riverside/San Bernardino, Los Angeles, San Francisco, San Jose and Sacramento — were also considered “white hot.” On average, home prices there have risen about 75 percent since early 2001, according to Merrill.

For the first time since 1999, home values in Washington state have outpaced the national rate of growth, according to the Federal Deposit Insurance Corp. (FDIC). It reported home values statewide rose 12.7 percent during the 12 months ending in March. That compares with 12.5 percent nationally.

The highest home-price appreciation was in Whatcom, Skagit, Pierce and Thurston counties, all of which reported annual price growth of 12.5 percent or more. King and Snohomish counties, by comparison, experienced 8 to 12.5 percent appreciation.

According to the FDIC, the gap between rising home prices and the lower growth in personal income has widened, suggesting affordability is declining for buyers in some parts of Washington.

More surprising, perhaps, are the price gains in Midwest markets like Milwaukee, Minneapolis and Cleveland.

“House price bubbles in these Midwestern cities, where manufacturing is king and activity is on the decline, flashes even bigger warning flags, in our opinion,” said Sheryl King, the Merrill senior economist who wrote the report.

With those kind of examples, it’s easy to see how comparisons to Wall Street’s technology heyday come to mind.

Back in the late 1990s, the major market indexes soared; among the most extreme cases was the fivefold gain in the tech-heavy Nasdaq composite index. That momentum boosted stock prices all around.

When the tech bubble burst in early 2000, the plunge was crippling. The Nasdaq was among the hardest hit, but other broader market indexes also saw gains quickly disappear.

Maybe some of what fueled the equity market’s boom then was that investors lived by what history showed, with stocks recovering losses if held long enough. What they seemed to forget was that stocks don’t always quickly rebound.

A similar theory could hold true in real estate today, according to Citigroup Smith Barney senior economist Steve Wieting. He points out that investors could be taking heart in knowing that national median home prices have never had a down year.

“The success of such arguments in drumming up speculation was very likely part of the equity market’s undoing … future returns in the equity market were undermined by too much appreciation too soon,” he said. “Similarly, real estate could become a victim of its own success under similar conditions.”

So what happens if the housing market follows in the stock market’s footsteps?

The dot-com boom was fueled largely by momentum investing — a bet that hot stocks would continue to rise. The housing market seems to be working the same way. Should that momentum cool, that could put most at risk those investors who borrowed money to gamble on a quick, profitable flip of their properties.

Much of what’s to come may hinge on where mortgage rates go. While the Fed has been raising short-term interest rates for a year, yields on longer-dated securities have yet to rise significantly. As a result, mortgage rates have remained at unexpected lows.

Should that change even slightly and lead to weakness in housing, it could cut into economic growth. Real-estate net worth accounted for 70 percent of the rise in overall household wealth since 2000, fueling consumer spending, according to Merrill.

Some measures say it has added about a half-a-percentage point to real gross domestic product (GDP) each year for the past five years.

That said, a housing collapse might not be as ravaging to the economy as the tech-stock bust. As Wieting notes, in the late 1990s there was little growth in U.S. output but for technology; estimates put average growth in output of high-tech industries at 43 percent per year from 1995 through 1999.

When the drop in tech activity happened, it left the economy without a solid growth driver.

But homeowners should prepare for the worst. They could get burned if the market switches gears, just as stock investors did.

Information from FDIC on Washington state home values provided by Seattle Times real-estate reporter Elizabeth Rhodes.