It wasn’t long ago that more than a few economists ridiculed the notion of a national housing bubble. Now everybody’s talking about it. “[H]ouse-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month” ( Economist, June 16).

Last year, seven months before the current hubbub, the Trumpet published an article that proved all the signs of a classic bubble were extant in the current housing market. We advanced what many considered to be a contrarian view—that “when enough regional bubbles start popping so that their impact is felt nationally, no one will question that a genuine national housing bubble exists.”

They haven’t started popping yet, but notice what the Wall Street Journal recently disclosed: “[T]he latest data suggest that real-estate values in the nation’s fastest-growing markets are getting so large that the distinction between them and the national market could become meaningless.” Quoting a chief economist at the Federal Deposit Insurance Corp., the article continued: “A slowdown would not only hurt these markets, but the U.S. as a whole” (June 20).

The newest data further confirm that many homebuyers (aided by accommodating lenders) are stretching more than ever to purchase an otherwise unaffordable home, which further inflates the bubble. During the second half of last year, almost two thirds of new mortgages issued were of the adjustable-rate (arm) or interest-only variety. So far this year, Business Week estimates that an astounding 20 percent of new U.S. mortgages are the interest-only kind (June 27). In California, interest-only loans accounted for 61 percent of new home mortgages in January and February.

“The situation with interest-only arms is just one of several very scary things going on in the mortgage industry,” according to the president of a market-research firm based in New Jersey. “The rise of interest-only loans, combined with other factors … are likely to cause foreclosures to rise … ‘possibly dramatically’” (FinanceGates.com, May 17).

In a bid to keep business booming, lenders and bankers have shoveled out these loans almost like the free suckers you can pick up at the bank teller window. Business Week makes these claims: Lending standards are looser, especially with adjustable loans whose rates will probably rise; loans are riskier—some loans now allow borrowers to skip payments in some months; and appraisers are pressured to deliver high-end appraisals under veiled threat of otherwise being snubbed. So as it feeds on itself, the bubble gets bigger and bigger.

The latest feeding frenzy is accentuated by the rise in speculative activity by buyers who are not interested in purchasing a home to live in but purely as a money-making investment. Some will buy 10 or 20 homes at a time. A Phoenix homebuilder estimates that as much as 60 percent of some of the newer developments locally are owned by investors. In South Florida, a development consultant calculates that sales to investors are as high as 80 percent in some subdivisions. Many of these buyers don’t care if their rental income is less than the mortgage payment because home prices are going up much faster than the amount they lose each month.

When the sizzling market finally cools, it will be this flood of speculators who, having the freedom to act (compared to owner-occupiers), will quickly sell their houses to maximize profits. This could easily trigger a downturn in housing-related activity and prompt a downward spiral on home prices. When others (for example, elderly retirees wanting to downsize) seek to jump on the bandwagon and “cash in” on their houses before it’s too late, this roller coaster ride will have reached its pinnacle and begin to plunge down the other side with ever-increasing intensity. The question is, how far could it go?

Since 2001, a whopping 43 percent of all net private sector jobs created have been in housing-related industries! Today, more than 60 percent of bank assets are tied to mortgages. And thanks in large part to inflated housing equity, American households borrowed $1trillionjust in 2004 to buy houses and other goods. Far too many assume they can count on rising home equity to bail themselves out of debt. This has the potential to be a huge disaster.

Probably the most significant development is that everybody is talking because “talk and high prices are the main things that end bubbles. The intensity of talk about the high prices right now is enormous, suggesting an emerging change of public thinking that may signal the end of the bubble” ( Wall Street Journal, June 2).

As we pointed out last November: “The U.S. economy has been perking along largely because it’s been propped up by the greatest housing bubble ever known. When it starts to unravel, it will likely lead to the biggest bubble bust in world history, hurtling the U.S. economy into chaos. … The shock waves could lead to a major global recession like we’ve never seen” (Trumpet, op. cit.). If that sounds extreme, would it help to hear it from a respected business magazine?

“The global housing boom is the biggest financial bubble in history. The bigger the boom, the bigger the eventual bust” ( Economist, op. cit.). The same article said, “[T]he day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.”

We proffer the same advice to you now that we did in November. Prepare now to reduce your standard of living.