Remember that great real estate bubble?
It appears almost as buoyant as ever, despite the Federal Reserve's decision to raise interest rates for the fourth time since June.
In some areas like the Midwest, the housing boom has settled down to a steady, reliable hum as demand has begun to level off. But in many other parts of the country, housing is still very hot.
Builders in New Jersey are having trouble finding enough land to meet the demand. In Silicon Valley - the heart of the dotcom bust - the shortage of available housing has meant double-digit increases in prices. And bidding wars for apartments in New York City, long cited as one of the most inflated real estate markets in the country, are still common.
"It's hard to imagine it getting any better than it is now, but I don't see much of a threat of a real slump either," says Michael Carliner, an economist with the National Association of Home Builders in Washington. "A lot of the things that we've had in the past that led to a big downturn in the market are now absent, such as a lot of speculative building and a large inventory of unsold houses."
Indeed, the supply of available houses is at a historic low, according to measures used by the National Association of Realtors.
Currently, it estimates there are 4.4 months of available housing inventory on the market. That's down from 4.7 months last year, and it's almost half of the eight-to-nine months' supply back in 1989, when the real estate market took a serious dive.
The current limited supply has led many experts to predict the housing market will staystrong well into 2005.
"We'll see continued home-price growth, perhaps less strongly than we've been accustomed to," says Lawrence Yun, senior economist with the National Association of Realtors in Washington. "But even with the rate hike, we expect prices to continue to grow."
Another explanation has to do with the difference between long-term and short-term interest rates. The Fed is ratcheting up short-term interest rates with small, regular hikes. But long-term interest rates, to which mortgages are tied, have moderated and even gone down despite those increases. That's not expected to change because inflation pressures are moderating.
"The Fed is very concerned about housing prices. It's on their radar screens, and I think that explains a lot about why they're being so measured in their approaches to interest rates," says Timothy Riddiough, director of the Center for Real Estate at the University of Wisconsin-Madison. "They're letting the air out very, very slowly and so far have been successful."
At the same time, the seemingly few people who haven't taken advantage of low rates to either refinance or buy a home are expected to jump in now, which could also fuel the market for the next few months.
Then there's the stock market. Some people are still skeptical about investing in it after its downturn. Many investors instead are still apt to plunk down their cash in real estate. But if the market continues to rally, it could negatively impact house prices. Some experts are already seeing signs of big-money investors hedging their bets.
"Big-ticket properties, the likes of which I've never seen before, are in the paper - like islands you didn't know existed with four houses on them selling for $4 [million] or $5 million," says Amy Johnston, author of "What the Experts May Not Tell You About Building or Renovating Your Home." "It feels like people are beginning to cash out at what they fear may be the peak."
Other experts note that over the past five years there's been a pretty substantial run-up in housing prices. "That can't sustain itself for any period of time. We learned that lesson in the '70s," says Stephen Thode, director of the Goodman Center for Real Estate Studies at Lehigh University in Bethlehem, Pa. "I'm not predicting any collapse in the real estate market, but what goes on in the next six to nine months may not be sustainable for the next three to five years."
Indeed, he says, barring any unexpected jolts in the economy, don't expect any signs of a major change in the housing market until the cherry blossoms bloom next spring.