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WSJ’s Top Economic-Forecaster Pick Worried About Real Estate Froth

David Berson, chief economist at the giant mortgage-finance company Fannie Mae, was named the top economic forecaster for the first half of 2005 in The Wall Street Journal’s semiannual forecasting survey.

What’s most interesting, at a time when the housing market is a major pillar of the economy, is this housing expert’s concern about the state of that market. Looking forward for the next 12 months, Berson is worried due to the “growing share of investors” in the market...which he sees as being overheated in parts of the country.

The National Association of Realtors (NAR) shows nearly 25% of homes sold last year were snapped up by investors rather than by individuals seeking a place to live. Berson says these investors have added substantially to housing demand, and they’re a volatile group. He is additionally concerned about the increasing use of “risky financial products” by home buyers—like mortgages with interest-only payment features.

(Editor’s note: John Tucillo, a real-estate consultant and former NAR chief economist. agrees with Berson’s assertion. “What you will see down the line is that speculators will find that their expectations are not fulfilled, and they will bail out with little or nothing to show for their efforts. And that will have a mini-firesale effect on the market.”)