By Samantha Pearson in São Paulo

Thalita de Jesus Moreira had just given birth to her fifth child when she moved to New Palestine, a vast squatter settlement on the outskirts of São Paulo.

Her landlady had left her with little choice, she says – late last year the monthly rent for her family’s bedsit nearby was increased to R$500 ($207), almost as much as the minimum wage her husband was earning as a caretaker at a factory.

“It was only R$300 two years ago,” the 28-year-old says as she gives her baby a bath in a bucket outside her makeshift tent.

Ms de Jesus Moreira is not the only person with concerns about spiralling costs in Brazil’s housing market.

A number of economists including Robert Shiller, the Nobel-prize winning Yale University professor, have warned that a bubble may be building in Latin America’s largest economy, where house prices have tripled since 2008, rising even faster than the cost of rents.

“Things have not changed so suddenly for Brazil that it would justify prices rising this much,” said Mr Shiller, adding that during a trip to Brazil last year he felt like he was in the US in 2005. “Interest groups develop that want to cheerlead the housing boom . . . it sounds like something I’ve seen before.”

Since January 2008, prices in São Paulo and Rio de Janeiro have risen 197 per cent and 243 per cent respectively, according to Fipe-Zap, the country’s leading housing index.

“According to our data, prices here have gone up faster than during the US housing bubble,” says Eduardo Zylberstajn, one of the index’s founders.

Few as yet are predicting the Brazilian market will suffer a full-blown crash like the US – where real house prices rose sharply before falling by more than 40 per cent nationwide.

However, any declines in the housing market endanger the country’s already feeble economy, which is overly dependent on consumption and may have already entered a technical recession, analysts say.

Neil Shearing, chief emerging markets economist at Capital Economics, estimates that Brazil’s residential real estate market may be overvalued by as much as 50 per cent.

However, he also admits that such calculations in Brazil are “more of an art than a science”. The Fipe-Zap index, for instance, dates back only six years, and initially just covered São Paulo and Rio de Janeiro, making it near impossible to estimate a property’s fair value.

Mr Shearing admits “there are plenty of reasons why prices have gone up”. Brazil’s growth spurt over the past decade has boosted wages, with nominal gross domestic product per head rising about 50 per cent since 2008.

Relatively low interest rates and greater competition in the banking sector have also driven down lending costs, allowing millions of Brazilians to secure a mortgage for the first time. Another factor has been the introduction by the government in 2009 of a subsidised mortgage programme for lower-income families.

By the end of last year total real estate financing had swelled to R$395bn, equivalent to 8.2 per cent of GDP, up from 6.8 per cent in 2012, according to central bank data. While interest rates are set to rise over coming months, state-controlled banks are under pressure by the government to keep lending at low rates to stimulate the economy.

Part of the problem comes from the large number of buyers ‘flipping’ properties, particularly in São Paulo and Rio de Janeiro. Investors put down the minimum deposit to buy an apartment before it is even built, and then sell the property for a quick profit when it is completed a couple of years later.

Alexandre Silva, a 39-year-old financial director with an import company, bought a property in São Paulo in 2010. “I put down R$20,000 on one place and more than tripled my money. I bought another two after that and then one more under my aunt’s name,” he says.

While Mr Shearing says the “degree of house price increases still seems difficult to justify”, others are more sanguine about the risks.

Mauro Peixoto de Oliveira, an adviser at Embraesp, a property consultancy, says the conservative nature of the country’s banking system means the risk of a widespread housing bubble is low. “In Brazil’s residential market there is more elasticity – prices have already begun to stagnate in some regions of São Paulo,” he says.

However, he believes “localised bubbles” do exist, particularly in the commercial property market.

In 2010, when the economy was expanding at 7.5 per cent per year, the dearth of office space in cities such as São Paulo prompted construction companies to plan a flurry of new commercial buildings.

However, Brazil’s labyrinthine bureaucracy and the country’s shortage of skilled construction workers meant that many of these buildings are only being finished now – just as economic growth has ground to a halt.

However, for Ms de Jesus Moreira and her neighbours in New Palestine, there is little hope that they will be able to afford to live in permanent accommodation again any time soon.

The hillside settlement run by the Homeless Workers’ Movement – the Movimento dos Trabalhadores Sem Teto – only sprang up in November, but there are already 4,000 more families on the waiting list to move in.

“This is our home now,” she says.