Inspecting Housing's Foundation for Flaws

The firm also noted that so many renters have now bought homes that the number of households still renting is nearing a 20-year low, and the financial stability of those remaining is sinking. According to the firm's calculations, the combination of rising interest rates increasing mortgage payments and the shrinking pool of renters will reduce the number of potential homebuyers by 2.1 million, or about 20 percent, over the next three years.

Already, home-price appreciation has far outstripped growth in incomes, reducing affordability. Nationwide, the median home price of $183,800 in the second quarter was about 4.3 times median income at the end of 2003, which was $43,318. That's up from about 3.5 times three years ago. The average price of a single-family home rose nearly 9.4% for the 12 months ended June 30, the largest 12-month increase since 1979, according to the Office of Federal Housing Enterprise Oversight.

Regionally, Las Vegas had the greatest median home appreciation last year, putting prices at six times income. In Los Angeles, prices are 10 times income and in Orange County, Calif., 14 times higher. Miami and San Francisco also have ratios above 10 and Boston's is almost 9.

As Fortune magazine pointed out over the weekend, 80% of the households in California can't afford to buy a house at the median price in the state. The Los Angeles Times reported on Wednesday that home prices around the city declined 1.6% between July and August.

On CNBC, Pulte's Dugas suggested the price hikes in certain metropolitan areas were the result of "local government's continuing to prevent us from getting lots on line to meet demand."

But despite alleged restrictions on building, new construction has continued at a furious pace. Single-family home construction totaled $371 billion in July, 21% higher than a year earlier, while spending on apartment units rose 12% to $39 billion, the Census Department reported. Single-family home construction is outpacing 2003's 17% expansion, which already was the fastest in at least 10 years.