Longtime Analyst Says Housing Bubble is Real

Barbara Allen, a housing analyst with Arnhold & Breichroeder Inc., is convinced housing price reversals will take the entire economy into a deeper recession as soon as 2003.

Allen’s reasoning includes four major points:

 For six of the first seven months of 2002, prices for existing homes in California rose 20% year over year. “It’s the same chart we saw in ‘89 and ‘90, and the second part of that chart was exceedingly unpleasant.”

 The biggest monthly shift of money into bonds in our history occurred in July. This will drive mortgage rates higher, slackening new home demand.

 Underwriting standards for mortgages are “very loose.” No-down- payment mortgages will lead to higher delinquency rates when more people lose jobs. Housing demand will go away as underwriting standards toughen.

 Short supply of lots and land is nothing new. “The two areas during the last cycle that had the most severe problems with price declines and low earnings for builders had the most restricted land supply, and that was California and the Northeast,” Allen says.