Bubble talk is everywhere. Housing (or, real estate) bubble, that is. Your neighbors talk about the bubble. Your barber talks about the bubble. There are internet blogs about the bubble. You can even buy housing bubble T-shirts. One report recently noted that "a LexisNexis search on the term housing bubble for July 2005 returned over 650 articles." Perhaps one more can't hurt.

A recent analysis by the Mortgage Bankers Association (MBA), "Housing and Mortgage Markets," is instructive regarding the bubble topic, and it is worth recounting some of the points the authors raise.

It is acknowledged, of course, that housing price increases in recent years have been remarkable.

"Over the past 30 years, house prices at the national level have grown at about a 6 percent annual rate. The year-over-year growth as of the first quarter of 2005 was 12.5 percent. Most of the coastal areas in the U.S. experienced double-digit growth in house prices in the last year, with many state growth rates above twenty percent."

And this has been going on for a few years now.

But rapid price run-ups in and of themselves do not a bubble make. After all, is anyone talking about a gasoline price bubble?

The MBA analysis points out, "Formal definitions of a bubble share the notion that buyers purchase an asset based primarily or exclusively upon expectations of future price gains." (Remember the internet stock bubble?) "The essential question," the report continues, "is whether current house price appreciation rates can be explained by economic fundamentals of supply and demand, e.g. interest rates, population growth, employment growth, income growth, unsold inventory levels and other factors, or whether they are driven by speculative activity, anchored only by expectations of continued price increases."

While acknowledging growth in speculator activity -- especially in Las Vegas and some coastal areas -- the MBA report found that, overall, recent housing market activity has been driven by fundamental forces such as employment and population growth, rather than by price speculation. Areas of the country that have seen unusually strong population growth (California, Arizona, Florida, Nevada) have seen some of the most dramatic housing price increases; but in parts of the country where population and employment growth have not been strong, there have not been the same sort of appreciation rates.

While population growth, employment increases, and low interest rates have fed the demand side of the housing equation, housing prices would not be rising so strikingly if the supply side could keep up. Californians don't have to look far to see that it hasn't, and can't.

Regulatory restraints and a diminishing availability of buildable land in strong employment areas are major factors. But also, the MBA report points out, today's builders are much more sensitive to inventory management than were the more autonomous local developers of past decades. Large levels of unsold inventories have the effect of pushing prices down, but that's not likely to happen. "As consolidation in the building industry continues to create larger, publicly-held companies that control significant portions of the major market and have shareholders to answer to regarding their management of their capital, we expect these positive trends with respect to inventory management to continue."

The MBA report also addresses pessimistic concerns that excessive borrowing -- stimulated by low interest rates -- will lead to catastrophic default rates and a collapse of housing prices if -- rather, when -- interest rates rise. "These concerns are overblown, given the fact that the vast majority of debt is tied to fixed interest rates. A Lehman Brothers estimate is that less than half of consumer non-mortgage debt has adjustable rates as does less than a quarter of consumer mortgage debt."

Homeownership in the U.S. is now at 69 percent, an all-time high. Moreover, "approximately 35 percent own their home free and clear. Another 51 percent have a fixed-rate mortgage. These 86 percent of owners benefit from house price increases and would not be affected, in terms of their mortgage payments, by an increase in interest rates."

The bubble? To the extent that it exists, it might deflate, but don't expect a bang. With apologies to T.S. Eliot, this is the way the bubble ends; not with a pop, but a hiss.

Published: September 5, 2005

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .