WITH PRICE GAINS IN MARKETS REMAINING strong, analysts continue to vie with one another to yell " housing bubble" the loudest. Given the problems in the equities market five or so years ago, the vigilance in ringing the alarm bells about housing is understandable but wrong. Thanks to strong fundamentals led by ongoing boomer demand, only two things can really derail our strong markets right now, a significant increase in mortgage rates (say by two or three points) , or a sharp, damaging recession along with a large drop in jobs.Either of these scenarios would dampen demand, leading to rising home inventories and weakening prices. But neither of those scenarios is in the cards. The U.S. economy created 207,000 jobs this July, the largest gain since April. Also, mortgage rates in the mid-August were hovering below 6 percent. The more likely future for housing is a classic soft landing. Although prices will decline in a few overheated markets, in most areas home prices will continue to rise,bat a modest, more sustainable pace that in the past few years.
At the same time, mortgage rates will continue to rise, making residential property less affordable, inhibiting demand a bit. That will soften home inventories, prompting price appreciation to slow. This scenario is already unfolding in key markets.
Take Las Vegas. The city was on top of the housing world two years ago, experiencing 52 percent growth appreciation. Price growth eased to 30 percent last year, and in mid-2005 it stands at 15 percent. This is air slowly leaking from a balloon, not a bubble popping.