The housing market isn't over-inflated like a balloon about to burst, but the strengthening economy could take some of the air out of rising home values.

In a federal survey of loan officers 51.9 percent of them said home values jumped 5 to 10 percent in the last year in markets they served and 13.5 percent said values rose 10 to 20 percent.

Conversely, in the coming 12 months, only 34.6 percent of them expect a 5 to 10 percent increase in home values while only 1.9 percent of them expect larger jumps of 10 to 20 percent.

Most -- 63.5 percent -- expect home values to rise only zero to 5 percent in the next year, compared to 28.8 percent of the loan officers surveyed who said home values rose that much in the past year, according to the Federal Reserve's quarterly April 2004 Senior Loan Officer Opinion Survey on Bank Lending Practices.

The survey of 56 domestic banks and 20 foreign lenders examined the supply of and demand for bank loans to businesses and households during the first 3 months this year.

This quarter, the survey also contained a series of questions about residential real estate loans that could further arguments against a so-called housing bubble -- a condition of over-inflated home values suddenly deflating, like a balloon popping.

Bubble market theorists say, in part, there are too many over-priced homes and too many homeowners with high loan-to-value mortgages. Bubble theorists also say that over-leveraged homeowners will be hit hardest by falling values, perhaps flooding the market with foreclosures in volumes that will further depress values.

A growing library of studies to the contrary reveal most homeowners are not over leveraged and, given the supply-demand equation in most markets, home values have nowhere to go but up.

Along with indicating home values are still on their way up, albeit at a slower pace, the Fed's survey also found that the tradition of lower loan-to-value ratios continues, as does the housing market as an economic linchpin.

Over the past year, 60.3 percent of the mortgage originations came with loan-to-value ratios that were less than 80 percent. An additional 25.8 percent came with ratios from 80 to 89 percent. The remainder, only 14 percent, had higher ratios, from 90 percent to more than 100 percent, according to the loan officer survey.

Even when second mortgages were included (including equity loans), only 19 percent of the loan officers' loans had loan-to-value ratios of 90 percent or more. The survey found 29.6 percent of total mortgage indebtedness had ratios of 80 to 89 percent and most of the home loans represented a loan-to-value ratios of less than 80 percent.

"At banks serving markets in which home prices rose 5 percent or less, 7 percent of second-lien mortgage and home equity loan originations were to borrowers with ratios of total mortgage debt to home value of 100 percent or more and 76 percent of originations were to borrowers with ratios of 90 percent or less. By comparison, at banks originating loans in areas where homes had appreciated between 10 percent and 20 percent, these shares were 1 percent and 88 percent respectively," the survey said.

Published: May 18, 2004

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.