have noticed more new homes sitting vacant here in the Tampa.


By Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET March 1, 2005
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ANNANDALE, Va. (MarketWatch) -- If I had a nickel for every time over the last several years when someone pronounced that real estate prices were a bubble soon to pop, I could pay cash for that multi-million-dollar house down the road whose price has more than doubled in a few short years.

So yet another assertion that housing is in a bubble is not usually enough to get me to sit up and take notice.

But I did take notice over this past weekend when James Stack, editor of the InvesTech Research Market Analyst and InvesTech Portfolio Strategy newsletters, jumped on the housing bubble bandwagon.

One thing that makes this noteworthy: Stack is not currently bearish on the stock market. He therefore parts company with others in the housing bubble camp who are forecasting a wholesale monetary and economic collapse that would, besides bringing real estate back to earth, would cause the stock market to crash as well.

Secondly, Stack's record is good. His InvesTech Portfolio Strategy newsletter, which focuses on mutual funds, is well ahead of the Wilshire 5000 (SVH: news, chart, profile) over the last 20 years on a risk-adjusted basis. To be sure, his other newsletter, which focuses on stocks, has not done as well over the longer term; I note, however, that over the last five years it is well ahead of the market.

Though Stack published his newsletter Friday evening, I'm sure he found further support for his real estate beliefs from the news Monday. Stack had noted that one of the biggest sources of concern about the housing market is that "new home construction [is] hitting record highs, while new home sales have already dropped close to 20-month lows."

According to data released Monday by the U.S. Department of Commerce, this divergence between supply and demand has widened even further. In January, the inventory-to-sales ratio for new homes increased to 4.7 months - its highest level since mid-2000. (Read news story.)

The increasing supply of new home sales is just one straw in the wind, of course. But on any of a number of fronts, Stack finds disturbing parallels between investors' attitudes today toward real estate with their attitudes toward Internet stocks prior to their bubble bursting in March 2000.

Whether the speculative frenzy is in Internet stocks, real estate, or any other asset, for that matter, Stack believes that the telltale signs of a bubble include:

Buying based only on anticipation of rising prices rather than on fundamentals
Expectations based on recent gains rather than on historic norms
No respect for risk
Major perceived risk: "Not being on board" rather than "possibly losing money"
Speculation and greed prevail
Stack concludes: "Now I know housing bubbles tend to be regional or selective. But speaking at conferences, I keep hearing more and more war stories from regions all over the country: Houses selling above the asking price to the highest bidder. Houses being bought, then immediately put back on the market hoping to flip a quick profit. This is truly nutty stuff that easily rivals the 'can't-lose' psychology on Wall Street in the bubble years."