Bulls on the housing market like to say there can't possibly be a bubble because almost everyone thinks there's a bubble.

According to this contrarian logic, if everyone thinks there's a bubble, they'll be cautious about overspending. So prices will remain reasonable. In computer code, that would be:

IF [Belief in bubble]
THEN [No bubble]

I hate to burst the bulls' bubble, but the IF statement was falsified in a report today by David Rosenberg, the North American economist for Merrill Lynch & Co.

To put it differently, most people DON'T think there's a bubble. They still think housing is a great investment, and they're betting on it bigtime. Evidence from Rosenberg's report:

--Nearly one in four Americans polled in a University of Michigan survey believe that now is a good time to buy a home since it is a good investment and/or prices will continue to inflate. This share is at a 25-year high.

--According to National Association of Realtors data, 23% of home purchases in the last year were bought as investments and another 13% were bought as second homes.

--Units sold even before construction began are up 47% from a year ago to a record high.

--Housing affordability is at a 13-year low and the total household debt service ratio is at a record high.

--Over one-third of homeowners are devoting over one-third of their incomes to monthly mortgage payments. Twelve percent are devoting over half their incomes.

--Seventeen percent of homeowners have a loan-to-value ratio of 95% or more. (A decade ago only 3% did.)

--The subprime market has accounted for 28% of new mortgage lending in the past six months, vs. 5% five years ago.

--In the hottest markets, adjustable-rate mortgages account for over half of new loans.

This is not the behavior of people who have turned hypercautious because they think a housing bubble is about to burst. This is the behavior of people who want to catch a wave and ride it as far as it'll carry them.

Any bulls out there have an answer to Mr. Rosenberg?

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