Surging Housing Market Sounds Echoes of Technology Past

A decade ago, a bulk of the business press was gushing about one industry's unprecedented growth, assuring readers they would develop an insatiable demand for its products.

That was then, when the dazzling glare of the tech bubble blinded us.

This is now, when the housing market promises to do the same. Luckily, many of us see that industry with a more dubious eye, blocking out the glare to see the bigger picture.

Now, we must cover residential real estate with the lessons we learned from irrational exuberance. We must challenge the escalating numbers and look for longer-term consequences. We must include rival viewpoints. And we must search for those neglected by the numbers -- people forced to foreclose on homes they couldn't afford to pay for, or others priced out of the market altogether.

"At this point, we're a lot more skeptical," says Annette Haddad, a business reporter who covers residential real estate for the Los Angeles Times. "A year ago, 18 months ago, it was different. Everybody knew somebody who made 1,000 percent on a sale of a home. At its nascent stage, stories may have been a lot more positive or bubbly about it."

But remember, this is now. "Anybody with a brain knows this can't continue the way it is," she points out.

In fact, forget the sellers who did make 1,000 percent off their homes. Let's talk to the buyers who nodded yes to those significantly higher prices. What happens to their return on investment when they've already bought that close to the peak price?

A larger consideration for reporters is what sparked the housing boom in the first place -- the Fed's lowering of interest rates, what would otherwise be an arcane piece of business news. That begs the question: Was there really as much demand as we all think, or was it artificially boosted by lower-than-low rates? So then what happens to that demand now, as interest rates begin to rise?

Danielle DiMartino of The Dallas Morning News has just a couple more questions:

• For one, immigrants make up many of the country's new homebuyers, so how much are stricter post-Sept. 11 immigration rules draining that customer pool?
• And now that interest rates are climbing, what will readers who opted for cheaper, five-year mortgages without a fixed interest rate do after that time runs out?
• Add in aging Baby Boomers who'll likely be downsizing their real estate at the same time, and will we have a deluge of sellers on the housing scene?

"Will they be able to sell their homes in five years? It's supply and demand," argues DiMartino, a Morning News market columnist who believes the housing market is inflated. "The American dream will turn into the American nightmare."

Last month, the Realtors trade association happily released news boasting the third-fastest rise in home sales and record-high home prices from February to March.

But don't accept that as the entire story. Think about what's not being said, and the long-term effects of both. For instance, Haddad says, home prices are still rising, yes, but their rate of increase is slipping. So people aren't willing to pony up payments at margins they were before.

"Prices are not going up as fast," she says. "Is this the start of a coming crash? I don't know that. But there's definitely a tempering."

DiMartino adds that home sales are up, and yet, inventory of homes has not slackened. In other words, even as homebuyers are buying at record rates, homebuilders are further stepping up their building.

"The month's supply of inventory is hunky-dory if, and only if, sales continue at their current levels or more," she says. "You're setting yourself up to always having to surpass a new bar."

And many times, market forces decide not to play along with those kinds of plans. If that happens, you best be prepared to cover it.

Watch for lending shifts, consumer debt trends and mortgage fraud. Build spreadsheets of home prices, sales and interest rates over decades to detect patterns. Talk to residents who've paid mortgage for years, and still barely built up equity in their homes. Check financial filings and market charts for homebuilder executives shedding their shares -- a sign they think their profits are about to be squeezed. Search for foreclosures and spiraling home equity loans.

In fact, think of the family finances relying on that equity, from Junior's college bills to future retirement plans. Assuming they're rich in real estate -- for now, not unlike Monopoly money -- many may not have set aside much in the way of savings accounts.

Most importantly, widen your boundaries for sources. Don't just call the home sale cheerleaders. Call their contrarians who worry about the market caving in. Call academics who aren't on either side. And go out and find the best of the lot: real people.

"In the case of real estate, your investor is the guy next door. So I really go out and talk to people. I go to open houses on the weekends," Haddad says. "You have to go where the buyers are."

Like tech talking heads 10 years ago, these sources likely can't foretell the housing market's future. They haven't even settled the debate over whether a housing bubble exists.

Still, this is now, when reporters are at least asking the right questions.