Real-estate broker Warren Teller watched as the housing market in Richmond, Virginia, slowed dramatically eight years ago. Today, he’s witnessing a reversal.

“We’re in the best position that we’ve been in since probably 2006 and 2007,” said Teller, 41, who’s even seen bidding wars and appraisal-topping purchase prices. “As far as prices, we’re back on track with where we were before the bubble burst, and as far as inventory, we’re down.”

As residential real-estate prices stage a comeback, Federal Reserve policy makers may be gaining an extra motivation for lifting interest rates for the first time in nearly a decade: They don’t want to let recovery evolve into excess.

San Francisco Fed President John Williams said in a speech on Monday that he sees “signs of imbalances” emerging in asset prices -- especially real estate. After saying that conditions haven’t yet reached a tipping point, he recalled that in the mid-2000s it was too late to "avoid bad outcomes" by raising interest rates once the housing boom was in full swing.

Williams told reporters Thursday that his housing market warning is “not about fighting bubbles, or trying to deal with financial stability” -- it’s more a response to why interest rates need to rise even though inflation remains low. “The reason you don’t just let an economy rip -- let it grow, and grow, and grow, and just see what happens, is because that usually ends badly,” he said.

Williams’ concern about how Fed policy might interact with asset-price stability could be a sign that bubble risks are gaining weight, at least among some policy makers. That attention comes just after the central bank put off an interest- rate increase at its Sept. 16-17 meeting in what both Williams and Atlanta Fed President Dennis Lockhart have characterized as a close call.

‘Overdoing It’

"He seems to be suggesting that if you are worried about overdoing it, the time to worry is now," said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut. "It’s not a central decision criterion, but if the decision is close, it can tip the balance."

Williams’ colleagues Esther George, president of the Kansas City Fed, and James Bullard, the St. Louis Fed president, have warned that keeping rates low for too long could lead to asset bubbles. Still, his comments are significant because his views are generally aligned with the centrists on the committee.

In his speech, Williams specifically cited that the price- to-rent ratio, which measures how expensive housing is relative to what one could rent similar units for, has rebounded to 2003 levels.