We are in the midst of . . . the biggest world-wide housing boom ever,” declared Robert Shiller, the Yale economist and author of Irrational Exuberance. In August 2004, sales of new homes went up by 9.4 percent, the biggest increase since December 2000.
By the end of 2004, a record number of new homes — 1.2 million — are expected to be sold, according to the National Association of Realtors.
And, according to recent articles in Bloomberg News, many builders are reporting that they are selling homes even faster than they can build them. For example, even if Toll Builders
of Huntington, Pennsylvania doesn’t sell another home for
the next 30 days, it would take
11 months to fill its backlog of existing orders. With nearly 7,000 units ordered but not yet delivered, Toll Brothers values that backlog at $4.35 billion.
Figures from the U.S. Commerce Department show that housing prices are 9.7 percent higher than they were during the same period last year.
Is the real estate boom headed for a bust? According to Shawn Tully in Fortune magazine, “The housing market is rapidly losing touch with reality. Fueled by interest rates that have remained near record lows, prices have continued to soar, and the gap between home values and the underlying fundamentals such as personal income and job growth is greater than ever. The most alarming development, though, is the change in psychology.
“‘The market isn’t acting rationally,’ says Christopher Thornberg, an economist at UCLA. ‘It’s now an emotion-driven market where people are buying on the expectation of future appreciation.’ Increasingly, Americans view houses not primarily as places to live but as foolproof, can’t lose investments. The passionate faith that money poured into real estate will magically multiply is creating a self-fulfilling speculative frenzy that’s bound to end badly.”
The real estate bubble is concentrated on the coasts. In cities like Cleveland and Dallas, prices have gone up gradually, in the low single digits. But in New York, Boston, Washington, Los Angeles, and Miami, home prices have surged 60 percent since 2000. In San Diego, the increase is an astounding 76 percent, which has pushed the median home price to $582,000.
Every month this year, an average of...
