HOW-ZING

according to the housing industry, the housing market is not experiencing a bubble. executives of every publicly traded housing company concur that there is no bubble and in fact, housing growth is expected to continue for the next 20 years. not only that, housing is no longer cyclical, and is not subject to normal business cycles. whew! problem is, i am trying to sell my house and i can't find a buyer. no need to worry. FED chairman greenspan says theres no housing bubble. fannie mae's CEO frank raines says that housing market is healthy and will continue to grow...no bubble. wall street analysts say no bubble. who else? OK, i say theres no bubble too.

so how is it that the only sector of the economy that is growing is the housing sector? this is the first time in history that the housing market has been uneffected by a significant downturn in the economy and the stock market. in fact, the housing market is hitting records in all data points. so how does the housing sector get its 'zing'. enter our fearless FED chief. during the downturn he has lowered interest rates so aggressively he has effectively made a house cheaper to own. just like 0% auto financing spurs demand even when there is none, the same dynamic has occured in the housing market. sure demand is there. you have to have a place to live so why not buy instead of rent. or why not buy bigger for the same cost? i have no good answer except go buy a house.

at some point the 'incentive' will lose its power and everybody who wants to own a home will have one or maybe two. after 2 full years of low rates, the time may be coming for housing to lose its momentum and become say, cyclical again. i know its a long shot but i wouldnt bet on further housing records to be set. and when the howzing boom slows, dont expect mr greenspan to be there to help, because his next move may be to raise rates and then that house will become somewhat more expensive to own for the buyer you may need to find.

have a grateful day!
larry