July 31, 2002     Los Gatos, California Since 1881 No bubble to pop, say housing groups By Jean Newton While everyone is trying to figure out what will happen with the stock market, others are debating the status of the housing market and whether there is a bubble or not. Comments by Federal Reserve Board Chairman Alan Greenspan in his testimony before Congress were encouraging to at least two industry trade organizations. Chief economists for the National Association of Realtors and the National Association of Home Builders said Greenspan's remarks refuted "once and for all, the existence of an alleged housing market 'bubble.' " The two trade groups collectively represent more than 1 million professionals from all walks of the housing industry. "The time has come to put this issue to rest," said David Seiders, National Association of Home Builders chief economist. "The nation's home builders have said it, the Realtors have said it, and now Alan Greenspan has said it once again, in no uncertain terms: There is no such thing as a current or impending house price bubble." Asked about the issue during his testimony, Greenspan said, "We've looked at the bubble question and we've concluded that it is most unlikely." He attributed recent "sizeable gains" in home prices to "the effects on demand of low mortgage rates, immigration and shortages of buildable land." Given the local nature of real estate, National Association of Realtors Chief Economist David Lereah said it's possible for prices to deflate on a local basis, but a "pop" simply isn't in the cards. He noted that, even during recessions and periods of declining home sales, the national home price has risen every year. "Over time, the typical home value appreciates at the general rate of inflation, plus one- to two-percentage points," he said. Greenspan acknowledged the "stabilizing force for the overall economy" that residential construction and related consumer outlays provided during last year's downturn, and noted in his testimony that the U.S. housing market continues to perform admirably in the evolving recovery period. Seiders and Lereah echoed Greenspan's apparent confidence in the industry when he predicted "reasonably strong housing demand." They cited a lean inventory of homes, historically low interest rates, good consumer confidence and strong demand from a growing population as affirmation that the housing market is fundamentally sound. The supply/demand situation indicates healthy price appreciation is likely to continue. The housing groups applauded Greenspan's leadership of national monetary policy and his wisdom in lowering interest rates, which has unquestionably helped housing support the economy during the recession and the early stages of recovery. It is no secret that housing is a key factor in the performance of the economy. According to a report by the National Association of Home Builders, "Nothing matches the might of housing when it comes to adding value to the U.S. economy. New housing construction and remodeling activity are powerful drivers of the nation's economic engine. Housing accounts for about 14 percent of the nation's Gross Domestic Product and drives other closely related sectors of the economy. Housing creates millions of jobs each year and generates billions of dollars in tax revenue. As housing goes, so goes the U.S. economy. Housing is a key to economic recovery in 2002." Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at   www.silvar.org. Send questions on any topic to jnewton@jnpr.com.