This New Indicator Shows There's No Bubble Forming in U.S. Housing (BusinessWeek)

The market will be at its most robust in 14 years, the gauge suggests

When a parking space in Manhattan costs $136,000 and only 15 percent of San Francisco's homes are affordable for the middle class, it's easy to worry that another housing bubble is around the corner. 

The vast majority of American homeowners have little to fear: A new gauge from Nationwide Insurance in Columbus, Ohio, suggests the national market is in its best shape since 2001 and there's no reason to fear a national downturn, no less a bursting bubble. 

In its first data release, the national Leading Index of Healthy Housing Markets rose to 109.8 in the fourth quarter. Values greater than 100 indicate a robust industry. The index uses local data in 373 metropolitan statistical areas that are underlying drivers of the housing market, including measures on employment changes, demographics and the mortgage market. 

When it comes to predicting bubbles, Nationwide's data is worthy of your attention. It accurately showed signs of unraveling in early 2005, long before the S&P/Case Shiller index of home prices peaked at the end of 2006 .  

The housing market may not improve by leaps and bounds this year, and that's exactly why Americans should feel good, David Berson, Nationwide's chief economist said. 

Source: Nationwide Insurance

"There are a lot of markets that are probably growing less rapidly than people would like, but that means they're sustainable, and in the Goldilocks sense they're just right," said Berson. "It's difficult — if you're only growing modestly — to build up imbalances that cause the growth to end, and that's what we're seeing in most of the MSAs today." 

Pittsburgh, Cleveland and Philadelphia were ranked the healthiest cities. Rock-bottom was Bismarck, North Dakota. 

"In Bismarck, the booming-ness is being caused mostly by good economic fundamentals," Berson said. "Still, prices are going up there at an unsustainable rate, and that's why it gets downgraded in our rankings." 

Source: Nationwide Insurance

The surge in property values in Bismarck is a case in point for Berson's biggest negative risk for housing this year: Home prices that far outpace income growth.

"Really the only concern I have is that home prices continue to grow too rapidly and make more parts of the country unaffordable," he said. 

Stagnant wage gains have been a thorn in the side of the U.S. economy since the expansion began, with the latest figures showing paychecks are growing at a pace that matches the average since we put the recession behind us in June 2009.

Set those pesky income data aside, though, and it's easy to see why housing is on track for stable, if not awe-inspiring, advances this year. And that's in no small part due to the impressive job gains of late, Berson said. 

"Because the jobs numbers in almost all of the U.S. picked up strongly in the second half of last year, the index looks pretty good almost everywhere."