Strong House Sales Built on a Fragile Base

The National Association of Realtor’s chief economist expressed concern about the use of exotic mortgages to fund the purchase of a house. He has generally been pretty bullish about housing, as is to be expected since he works for realtors, however, in recent weeks he has been a little more cautious.

["Expectations of even higher prices are also contributing to strong sales and creating bubbly conditions in some regional markets," Nariman Behravesh, chief economist at Global Insight, wrote in a research note.

Federal Reserve Chairman Alan Greenspan, while discounting the possibility of a national housing bubble, has talked of "froth" in local markets that have seen a sizable run-up in prices over the past year. He has also expressed concerns that home buyers are using types of mortgages that allow them to purchase more expensive homes with less of a down payment, leaving them vulnerable if prices do fall sharply.
NAR's Mr. Lereah said he too was concerned about the reliance on interest-only mortgages and other types of loans that are offered with low down payments. Such financing would leave borrowers vulnerable if home prices started to slide in areas where price increases have been the greatest.

"I worry about a high level of questionable loans in those bubble areas. That could make those markets more fragile," Mr. Lereah said.]