Up, up, and... then what?

Carol Ann Shea finds herself "astonished constantly" at the high price of homes in this upper-middle-class suburb of Boston. A "pretty ordinary house" with three bedrooms, 1-1/2 baths, usually sells in the "upper 400s, lower 500s," says the Century 21 real estate agent.

"Half a million dollars is a lot of money," Ms. Shea says. "I don't see it as affordable."

Yet the buyers keep coming, snapping up houses. And the average home price keeps rising – more than 6 percent a year.

Nor does Shea see this as a price "bubble" – something the Boston region experienced in the 1980s until it burst about a decade ago. Many experts agree.

"Demographics say the housing market is sound," says Mark Duda, a research analyst at the Joint Center for Housing Studies of Harvard University in Cambridge, Mass.

Looking at such factors as high immigration numbers and the formation of new families, Mr. Duda figures the nation will add almost 22 million new homeowners by 2020 on a net basis – after the destruction of houses by urban renewal, fires, tornadoes, etc., or just plain wear.

"You are talking of substantial growth," he says. "That will put a floor under the housing market for several years to come. We are not calling this a bubble."

Of course, most Americans don't pay Newton prices for their homes. In March, the median price in the United States for an existing home was $153,000. That was a 6.7 percent increase from a year earlier. The median price for a new house was $176,700, up 6.3 percent from the previous March. (See chart, page 19.)

Further, the housing industry is enjoying a boom. Last year, 1.6 million housing units were started, including about 350,000 multifamily dwellings. Some 909,000 new units and 5.3 million existing homes were sold, for a total of 6.2 million.

"An all-time record," says Frank Nothaft, chief economist for Freddie Mac, a company that purchases the mortgages of 1 in 6 homebuyers and the apartments or other housing of more than 2 million renters in the US.

Mr. Nothaft sees house sales this year coming "very close" to that 2001 record, helped by good weather this past winter.

Yet there is some nervousness about today's house prices.

That's especially so in such high-price locations as the Boston region, New York, Miami, San Diego, and the San Francisco Bay Area. In the Bay Area, the collapse of many dotcom companies has already trimmed prices.

Some data suggest trouble. In the last quarter of 2001, the number of foreclosures in process nationwide moved up to 1.04 percent of a sample of 30 million mortgages from 0.85 percent the year before.

But the number of mortgage loans in which homeowners are delinquent on their payments fell slightly to 4.65 percent in the fourth quarter of 2001, from 4.87 percent in the previous quarter. That leads Douglas Duncan, chief economist of the Mortgage Bankers Association of America, to suspect that the peak of foreclosures may be past.

"Are home values going to crash?" asks Nothaft. "Absolutely not. Will there be some markets that will be down? Absolutely."

The last time annual average house prices across the entire US fell was during the Great Depression, more than 60 years ago. Duda figures prices will rise "a little slower" in the years ahead.

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