Housing bubble - just booms and balloons
November 2006
Existence of a housing bubble is still denied by Chief Economist of the National Association of Realtors, David Lereah. Data on home sales shows "There is still bad news , but the bad news is getting better" he said. Speaking at the annual real estate trade convention in New Orleans he proposed that the forecast fall of 9 percent in home sales this year is nowhere near the bursting housing bubble of the eighties, which saw a 48 percent fall.
He conceded that the highs of the real estate market of 2005 were an "unsustainable frenzy" but still maintains that history is no guide to the current market as we are in a "unique housing cycle". The reason that its different this time is because, according to Lereah and others, there is continued job growth and low interest rates. He welcomed the fall in prices since "We had a balloon and we are deflating it" and pointed out that sales volume is more important than price.
Lereah also stressed how it was unwise to generalize about a national real estate market, since "conditions vary tremendously among the nation's regions, cities, and even in different areas in the same city". Local markets, he said, could fall into the following five categories - Nonboom stallers, Nonboom gainers, Boom lite, Average boom and Hot boom.
Even though it may be worth treating national data with caution, the news that record numbers of home buyers were backing out of deals, even though that means losing a deposit, casts a different light on the straight sales volume / price view of the market. Whether this points to a boom or a balloon is open to debate.
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