Owning Up

The housing bubble won't burst like the stock-market bubble, but that doesn't mean it's problem-free.

By Robert Kuttner
Web Exclusive: 06.02.05

Is the housing market experiencing a dangerous price bubble, one destined to pop, like the late stock-market collapse? Housing prices have been rising faster than incomes since 2000, and the ratio of housing costs to incomes is now the highest since the Depression.

To compensate, homebuyers are borrowing more than ever, before homeownership gets away from them altogether. On average, homeowners have less equity and more debt than in 2000. And more buyers are taking bigger risks, using adjustable rate and interest-only mortgages, which leaves them little wiggle room as interest rates rise or housing values decline.

Nationally, housing prices have gone up 15 percent in the past year, the biggest jump since the hyper-inflationary year 1980. In some sub-markets, such as parts of coastal Florida, they’ve risen as much as 40 percent. The rising percentage of investor-speculators buying homes -- over 20 percent according to the National Association of Realtors -- is also inflating the bubble.