Investors wonder, what housing bubble?

Real estate agents have been saying for years that investors increasingly have been turning from the stock market to the housing market for a place to increase wealth, but the claim was hard to quantify. A new study by the National Association of Realtors suggests the trend is deeper than many experts imagined and has raised fresh warnings that a so-called housing bubble may be stretching to dangerously large proportions.

Investment property and vacation homes accounted for more than one-third of residential transactions in the U.S. during 2004, according to the NAR, a trade group. The new study, based on two surveys, shows that 23 percent of all homes purchased in 2004 were for investment, while another 13 percent were vacation homes.

In addition, a record 2.82 million second homes were sold in 2004, up 16.3 percent from 2.42 million in 2003. Sales of investment homes rose to a volume of 1.8 million units during 2004, up 14.4 percent from the 1.57 million recorded in 2003. Sales of vacation homes rose 19.8 percent, to 1.02 million during 2004.

David Lereah, the NAR’s chief economist, has said the trend is a sign that the housing market is becoming more liquid and a viable alternative to the stock market. Some, however, worry that investors are pushing demand and prices to unnaturally high levels.

Local housing analyst Appraisal Research Counselors warned in its 4th quarter Downtown Chicago Residential Benchmark Report that speculators, though hard to identify, continue to inflate demand in the Chicago market. High investor participation in downtown developments against a backdrop of rising interest rates, growing construction costs and a lack of job growth are cause for concern, according to the report.

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