Home Price Bubble Continues to Spark Controversy Among Economists.(Brief Article)(Statistical Data Included)

Few economic trends affect the fortunes of mortgage insurers more than home prices. Falling prices inevitably lead to higher claims, while rising prices can help stave off credit losses, even on loans that do go into default.

Economists are divided on the question of whether or not there is a "bubble" in home prices. If there is, that suggests that prices could fall precipitously in the near future after years of strong home value appreciation.

Those years of appreciation helped mortgage insurers post strong profits.

Recently, analysts and the chief economist from UBS Warburg hosted a conference call to discuss the issue. UBS Warburg chief U.S. economist Maury Harris says the case against a price bubble is strong.

He sees a number of factors that boost home values, reducing the chances of a bubble developing and bursting.

First, Mr. Harris believes that "wealth effect studies" probably understate the real estate role in boosting household wealth, noting that 86% of reported capital gains (mostly from stocks) and 42% of income are claimed by households earning in excess of $100,000 annually. However, these high-income ...