Is housing bubble possible again? Experts disagree

Article Courtesy of The Palm Beach Post

By Kimberly Miller

Published April 21, 2012

-- There is little to prevent another housing run-up and subsequent bust as long as there are people who want to get rich quick, said the chief economist of AIG during a business conference Tuesday at the Palm Beach County Convention Center.

Ardavan Mobasheri, who spoke to about 100 people gathered for a real estate discussion at the International Economic Forum of the Americas, said the financial crisis that began in 2008 can "easily trace its roots to the excesses of the housing market" but can't as easily be stopped from happening again.

"So long as individuals have the liberty and freedom to be greedy, the speculative bubbles will be inevitable, and we'll have to deal with the outcome of the bursting of that bubble," Mobasheri said. "There is no measure we can take to prevent investors who want in a short period of time to become rich."

AIG, a multinational insurance company, was a major contributor to the economic crisis when it imploded in September 2008. A credit rating downgrade required it to put up billions of dollars in cash collateral, which triggered a lack of liquidity. Its federal bailout package of $182.3 billion was the single largest of any company in U.S. history. AIG has paid back billions of dollars. Its remaining debt to the Troubled Asset Relief Program is about $35.7 billion.

Although there is no cure for greed, changes in mortgage application requirements and underwriting guidelines will help thwart a repeat of the multitude of bad loans granted during the housing boom, said Lawrence Yun, chief economist for the National Association of Realtors, who spoke during the same session as Mobasheri.

"Back in 2005 investors came in with exotic mortgages and liar loans, but that's not the case today," Yun said. "These investors are coming in solidly with cash deals."

Yun was optimistic about a housing recovery, predicting Florida existing-home prices will jump 10 percent by the end of 2012.

Several Realtors in the session said bidding wars are again commonplace and that they are having trouble finding homes for traditional buyers, especially those getting a loan instead of using cash. One Realtor told the panelists she worries that another mini-bubble is forming.

"The home is on the market for $115,000 and people are bidding $150,000," she said. "It's not a fair game for people trying to purchase with financing."

In February, there was a six-month supply of homes for sale in Palm Beach County, down from nearly 14 months during the same month last year, according to the Realtors Association of the Palm Beaches.

Yun's pricing prediction was buoyed Tuesday by a report that found Palm Beach County listing prices were up 15 percent to $225,000 in March compared to the same time in 2011. Nationally, the list price was up 5.5 percent.

A backlog of homes in foreclosure will eventually expand the housing supply, a development welcomed by Florida Realtors President Summer Greene .

"When you put a foreclosure on the market you have, two, three, four offers coming in," she said.

While real estate may be bouncing back, other speakers Tuesday were more reluctant to forecast a rapid overall fiscal recovery.

"Risks remain high and the path forward is shrouded in uncertainty," said Lisa Shalett, chief investment officer of Merrill Lynch Global Wealth Management, during her keynote speech. "The global economy is far from out of the woods."