Through The Roof
With home prices at record highs, some experts say it may be time to pull back
Many in the industry say there won't be a price collapse because they are preparing now for a soft landing. Jeff Mezger, chief operating officer for KB Home, one of the nation's biggest home builders, says his company is limiting speculation by requiring that about 90 percent of the homes it builds be presold. And last year, KB started cracking down on investors by insisting that all buyers live in the homes. "We recognize prices cannot continue to increase at the level they are," says Mezger. But he sees a big backlog of contracts and record crowds at sales offices. At the worst, he believes, prices will level off for a while and then start accelerating again. "Business is strong."
Perhaps. But some buyers are getting anxious. Larson is thankful for the tax break, and he anticipates profiting from Tacoma's 19 percent-a-year housing increases. But he's worried about recent investment customers who are paying top prices and may have an even tougher time covering their costs.
Of course, bubbles can persist and do plenty of damage, despite the warning signs. Greenspan gave his famous "irrational exuberance" caution about the stock market in 1996. The Dow Jones industrial average then went on to double over the next four years, before falling about 40 percent. If history repeats itself, even average Joes could be living in half-million-dollar houses before this bubble bursts. While housing has long been considered less volatile than stocks, it would be a mistake to assume that any asset that can rise 45 percent in a year can't, or won't, have just as dramatic a fall.
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