ECONOMISTS ALARMED BY U.S. HOUSING MARKET'S PARALLELS WITH LAST DECADE'S STOCK BUBBLE

By Motoko Rich and David Leonhardt

New York Times


Real estate-crazed Americans have started behaving in ways that eerily recall the stock-market obsession of the late 1990s.

In a version of day trading, some houses in Naples, Fla., have been bought twice in a single day. Buying stocks on margin has morphed into buying homes with no money down. The over-the-top parties of Internet start-ups have been replaced by flashy gatherings where developers pitch condos to eager buyers.

Five years ago, cable channel CNBC sometimes seemed like a backdrop to daily American life. Its cheery analysis of the stock market played in offices, in barbershops, even in some bars. Today, ``Dude Room,'' ``Toolbelt Diva'' and other home-improvement shows are the addictive fare that CNBC's exuberant stock shows once were.

``It just seems like everyone is doing it,'' Laurie Romano, a 26-year-old self-described real estate investor, said with a giggle as she explained why she was attending an open house this month for the Nexus, a 56-unit building going up in Brooklyn's chic Dumbo neighborhood. She and her fiance, a dentist, already had put down a deposit on a Manhattan condo earlier in the week and had come to look at another at the Nexus.

Nobody can know whether the housing boom of the past decade will end as the dot-com frenzy did. But the parallels are raising alarms among many economists, even those who acknowledge that there are important differences between homes and stocks that significantly reduce chances of another meltdown. For one thing, houses are not just paper wealth: You can live in them.

Perhaps the most troubling similarity, some analysts say, is the claim that the rules have somehow changed. In an echo of the New Economy investors' blase attitude toward unprofitable companies, the growing ranks of real estate investors are buying houses they never expect to be able to rent at a profit. Instead, they think the prices of houses will just keep rising.

Indeed, the government reported Thursday that sales of new homes jumped sharply in February in the biggest monthly increase in four years. A strong economy and an improving job market contributed to the gain, as did speculative fever. But many also were trying to beat rising mortgage rates, which could eventually cool the market.

Premonitions of a bubble on the verge of popping do not ruffle those who are bullish on real estate. In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.

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This post was posted on March 25, 2005 in the following sections: Articles. There are currently 3 comments.

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