Though housing appreciation has shown signs of slowing, a housing bubble is not on the horizon, argued economists and analysts from Bear Stearns on a recent conference call.

"The things we look at - rates, housing turnover, equity, supply-demand, and home prices - all support a housing market that may not grow in the 10% range but certainly there is no housing bubble," said Dale Westhoff, head of MBS research at Bear.

Despite the recent sell-off, the refinancing wave is already in the pipeline. Thus, the market is still in the midst of a major refinancing event, although not as strong as in recent months.

In terms of aggregate housing turnover, the market saw a secular change starting in 1997 linked to the elimination of capital gains tax on home resales. From 1980 to 1997, the average in the turnover rate was around 5.5% to 6%, and much of the pricing assumptions in the mortgage market are based on that 6% range. Beginning in 1997, the average jumped to over 7% and is currently at 7%, even though interests rates have ranged anywhere from 6% to 8.5%.

"This structural long-term change has added tremendous support to the housing market," Westhoff said.

Bear has also looked at the equity take-out that occurs during a refinancing event as people have cashed-out the equity in their homes. Westhoff stated that about 50% of the refinancing transactions could be attributed to cash-outs.

Though Fannie Mae and Freddie Mac still have better data in this respect, Bear conservatively estimates that about $80 billion to $100 billion worth is going to be cashed-out from the current refinancing wave. Westhoff added that the more interesting number is the amount of equity currently available - the value of the housing stock right now is roughly over $13 trillion while mortgage debt is about $6 trillion. This makes the available equity out there to be about $7.5 trillion, which went up from approximately $6.6 trillion last year.

"So even if borrowers are cashing out at record rates, the replenishment rate has been much greater in that equity than the cash-out rate," said Westhoff. He added that the average borrower has seen over 40% increase in home values the last five years.

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