With prices for real estate mushrooming at double-digit rates, nary a day passes without at least one voice warning that the housing bubble must burst, and soon.
There is little doubt that the pickings for bargain hunters are growing slim in many housing markets, as first-time buyers find themselves priced out. Yet millions of Americans remain on the hunt, looking for bigger, fancier digs. Never mind rising property taxes and soaring costs for heating and cooling.
That brings us to Tuesday’s report of July housing starts. Economist Lynn Reaser says it’s too soon to start shouting gloom and doom, although some clouds are on the horizon for the sizzling real estate markets.
“We’re seeing some signs of slowing sales, including longer times on the market for condos in certain markets. There also are places where rents are soft, another sign that the situation is cooling,” said Reaser, of Bank of America’s investment strategies group in Boston.
Over the next 12 to 18 months, higher mortgage rates inevitably will cause a moderation in home-buying activity, she said.
“The good news is that housing developers haven’t overreacted by building too many homes,” Reaser said. “In many places, they are held back by a shortage of buildable lots, as well as higher costs for labor and materials.”
The meek behavior of inflation numbers in recent months has caused some analysts to question the Federal Reserve’s campaign to boost short-term interest rates. The central bank notched its target a quarter-point higher last week, to 3.5 percent, the 10th move in less than 14 months.
New inflation numbers emerge Tuesday and Wednesday, with the August consumer price index and producer price index, respectively. In July, both the statistics were unchanged.
It is too soon, however, to think that the Fed can halt its anti-inflation offensive, says economist Eugenio Aleman of Wells Fargo & Co. in Minneapolis.
“All factors point to a stronger economy during the second half of the year, just the opposite of what pundits had predicted,” he said. “For the Fed, it means further increases in interest rates, perhaps well into 2006.”
With prices not far from a four-year high, investors in the stock market are embracing the idea that the aging bull has more room to run. So far, blue chips have made up about 60 percent of what they lost four years ago, says Flossmoor, Ill., investment adviser Richard Evans.
However, investors are reluctant to become ragingly enthusiastic, according to Evans, because many are on the sidelines, waiting to sell.
His bottom line: “Simply put, too many investors still are looking to cut their losses.”
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(c) 2005, Chicago Tribune.
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AP-NY-08-12-05 1742EDT
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