Could this

type of thing occur in the housing market? Not likely. Take it from Alan

Greenspan. The Federal Reserve chairman recently told Congress not to

worry about bubbles in house prices, despite well-publicized concerns

on this front. Greenspan focused on major differences between stock and

housing markets that illustrate the practical impossibility of generation

and deflation of large national house price bubbles.

He stressed

the substantial financial and emotional costs to homeowners of selling,

buying and moving; in this context, he noted that the relatively low turnover

rate of single-family homes is "scarcely tinder for speculative conflagration."

Greenspan also underscored the fact that opportunities for successful

arbitrage are quite limited, since housing markets are localized and few

people can (or will) jump from market to market in order to pursue house

price gains or to avoid price declines. In this regard, Greenspan noted,

"the underlying demand for living space tends to be revised very

gradually."

Systematic

analysis of measures of homeownership affordability, and of the relative

costs of owning and renting homes, simply does not yield evidence of a

national house price bubble. With the exception of a very limited number

of local markets where unrealistic income, financial wealth or house price

expectations generated a surge in demand, or where a collapse of the economic

fundamentals left house prices hanging at unreasonably high levels (examples

include areas that were driven by high-tech fervor and then were saddled

with a high-tech collapse), the nation's housing market is in fine shape.

Annual home

price appreciation in the 3-to-5 percent range seems a reasonable expectation

for the next few years. While that's slower than the pace of recent years,

it's well above our forecasts of consumer (or GDP) price inflation, largely

because spreading land use controls are placing persistent upward pressure

on lot prices in places where housing demand and home building are likely

to be concentrated. Over time, prices of both new and existing homes naturally

gravitate toward the replacement cost of homes.

The bottom

line? Concerns about a house price bubble are full of hot air.

(Chad Floyd,

who is with Chadwick Homes, is president of the Home Builders Association

of Midwest Georgia, which serves a membership of approximately 550 builders

and associate members in Fayette, Coweta, Spalding, Heard, Meriwether,

Pike, Upson and Lamar counties.)

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