Boom or bubble? Many in the media have written about a "housing bubble." But most housing economists quarrel with the use of that term. What's really going on with house prices?

Mortgage Banking, April, 2006 by Neil J. Morse

Borrowers have overreached

Another familiar veteran of the housing industry sees real trouble ahead for homebuyers who have embraced with near-abandon all of the new mortgage financing products, which he calls "exotic." Writing in a mortgage trade newspaper earlier this year, Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, Cambridge, Massachusetts, blamed "an optimism born of myopia" among borrowers who "sign up for a deal they can afford in the present--but which may bankrupt them in the future."

Retsinas, a former federal housing official in the Clinton administration, warns that in the next 12 to 18 months, 7 million households (representing $1 trillion in mortgage balances) will see their payments adjust--i.e., increase.

"For people trapped in an escalating schedule of mortgage payments, this mortgage bubble is real," argues Retsinas, who counsels caution for both sides. "Before the bubble traps more homeowners, lenders should screen buyers. And buyers themselves should scrutinize the contracts." Without this prudence, says Retsinas, "the bubble could burst into foreclosure."

Neil J. Morse is an independent writer and mortgage industry consultant based in Newtown, Connecticut. He can be reached at morse@ntplx.net.