I saw Bruce Karatz, CEO of KB Homes, speak today at a real estate conference. He explicitly said that there was no bubble and that housing prices have appreciated because of fundamental demographic changes. He completely avoided talking about the impact of interest rates and went as far as saying that sales volume may remain at record levels for the next 20 years. While I think his opinions are preposterous, I understand that as the CEO of a publicly traded home builder there is no way he can say there is a bubble.
He made no mention of any fundamental economic drivers of home price appreciation other than job growth, which he claimed was less than stellar. Bruce also claimed that homes will not drop in value because there has been little over building compared to previous cycles. While most public homebuilders learned their lesson about spec building in the last cycle and have vastly reduced their WIP. The potential for oversupply still exists, if according to the NAR 40% of the new homes in 2004 were sold for investment or second home purchases, these can come back on the market quickly. People do not move out of the homes they occupy if they go down on value, but if their investment properties go down, why would they not get out?