KEN IGE / KIGE@STARBULLETIN.COM Alex Perriello, chief executive of Coldwell Banker Real Estate Corp., says changes in demographics are fueling the nation's strong housing market.

No housing bubble,
Coldwell chief says

CEO Alex Perriello maintains
the nation's housing supply
is in good shape

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By Lyn Danninger
ldanninger@starbulletin.com

Fears of a housing bubble in the nation's real estate market are exacerbated by reports that price appreciation in the nation's hottest markets is accelerating rather than slowing down. But the head of one of the nation's largest real estate firms, in Honolulu this week, believes the fundamental are stable.

Alex Perriello, president and chief executive office of Coldwell Banker Real Estate Corp., said much of the current buying surge is driven by population demographics, low interest rates, and favorable tax advantages rather than a move toward real estate speculation as a replacement for an unpredictable stock market.

While Perriello acknowledged that individual real estate markets may differ widely, fundamentally the nation's housing supply is in good shape, he said.

"The supply and demand inventory level is very balanced on a national level," he said. "Right now there are about 2.2 million homes for sale and about five months in inventory."

Not only are baby boomers in their prime earning years, aging parents are now transferring a huge amount of wealth to that generation, Perriello said. Moreover, echo boomers, the children of baby boomers, are making their first home purchases.

Tax advantages have helped sales. Perriello noted that the IRS exemption per couple on the first $500,000 in income gain from a real estate transaction has encouraged investment and enabled more people trade up to more expensive properties, he said.

Single women who are heads of households are now one of the fastest-growing demographic groups in the country. The number purchasing homes in the past few years outpaced the overall rate of home ownership, Perriello said.

"I think it's probably better educational and job opportunities," he said. "It used to be that some forms of income women received were discounted. Now they are included when qualifying for loans."

Immigrants, who in 1970 numbered one in 20 of the U.S. population, now account for one in 10, and are another growing influence on the real estate market, Perriello said.

"They're here to stay, they're growing and they're pre-disposed to buy houses," he said.

Builders are also more cautious now about the amount of inventory that comes on the market at any one time.

"In the old days you could say they built with reckless abandon," he said. "But today you don't see that. They build in increments at a time."

Perriello predicts similar real estate activity over the next couple of years.

Local real estate analyst Ricky Cassiday agrees with much of Perriello's national assessment, but is more cautious about the future.

"Right now, home sales have bucked the economy. The economy went down or sideways yet prices and sales kept going up. That's why everyone has been concerned," he said.

What happens in the real estate market also depends upon people's motivation for buying, he said.

"To date, most houses have been bought out of need for shelter," he said. "However, as more people talk about houses as a sure thing investment relative to the stock market, then prices will rise because then people buy out of greed and that's when the bubble forms."