A decade after the U.S. housing market collapsed, FederalReserve officials are watching rising apartment towers as the nextpotential asset-price bubble, which could add to the debate aboutthe pace of interest-rate hikes this year.

Fed Chair Janet Yellen cited commercial real estate prices as“high” in a speech at Stanford University on Jan. 19. That messagehas been echoed by Governor Jerome Powell, who warned “low ratesmay lead to a reach for yield,” as well as Boston Fed PresidentEric Rosengren, who cited luxury housing in his city.

While single-family housing prices have had a gradual recoveryfrom the mortgage bust, commercial real estate is showing signs ofbeing overheated in markets such as New York, San Francisco andBoston. Fed officials have mostly said they plan to addresspotential asset price bubbles with financial supervision, ratherthan by raising interest rates at a faster pace than they currentlyexpect. But such hot-spots are testing their patience.

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