Bursting bubbles.(Ahead Of The Curve)

ITEM: "The housing market is rapidly losing touch with reality" warned the September 20 cover story in Fortune magazine, describing the Fed-fueled nationwide housing and mortgage "bubble." "Fueled by interest rates that have remained near record lows, prices have continued to soar, and the gap between home values and the underlying fundamentals, such as personal income and job growth, is greater than ever."

With the Fed beginning to raise interest rates, indications abound that the "bubble" is about to burst, with potentially devastating economic consequences, continued Fortune. "The most likely trigger would be a sustained rise in interest rates, coupled with continued increases in a burden on housing that most experts ignore: soaring property tax rates."

While the popping of previous housing bubbles has created severe localized hardship, "this time around there is a real danger that a downturn in prices, or even a stall, could slam the economy, especially all-important consumer spending," continued the report. "Americans have used their homes like ATMs, taking out $662 billion in home-equity loans and refinances since 2001...."

"For now, home buyers" are coping with higher rates by taking out adjustable rate [mortgage] loans [ARMs]," observes the financial periodical. When "rates do jump, some people who stretched to buy their houses with the shorter-term ARMs won't be able to afford their monthly payments."

Business Week for July 19 offered a similar warning. "A downturn in housing would squeeze recent buyers who overleveraged themselves to pay top prices--and risk slowing the entire economy by cooling consumer spending as well as housing construction, lending, and the real estate business," noted the journal in an article headlined "Is A Housing ...