I remember the good old real estate days of the 1980s like they were yesterday. An active real estate investor myself, I recall how builders and developers were padding their pockets with money (and their stomachs with $500 lunches). Well, guess what? Those days are back again.

At breakfast this morning, Anthony, my real estate confidant (he works as the controller at a mid-sized home builder), was telling me how builders are bidding up the price for lots and how consumers are lining up to buy the houses builders put on those lots. The builders are getting fat again. Looks like they've forgotten how good times can change to bad times very quickly. Maybe they forgot the early 1990s.

Anyhow, I have a few caveats about the housing market:

--- Most new home first-time buyers are carrying very big mortgages these days. A seasoned real estate lawyer told me she hasn't seen a cash closing for a new home in five years. In Canada, new home first-time home buyers can get 100% financing because the government guarantees the mortgage to the bank!

--- On Friday past, when the surprise job growth was announced by the Labor Department, bonds and housing stocks were hit very hard. Is the market telling us higher interest rates are ahead and house buying will cool?

--- An accountant friend of mine, who does about 900 tax returns a year, told me yesterday that mortgages of $500,000 or more are common with his "high-end" clients. It's common for their regular homes, summer homes, and winter homes. Hence, rising interest rates could cool this market drastically.

--- In the Good Old Times, people forget about the Bad Old Times. I remember when land prices in Japan were going through the roof because "they weren't making anymore of it." No one would have dreamed 15 years ago that land prices in Japan would fall. But last year, in 2003, Japan land prices fell for the 13th consecutive year! Japanese investors have forgotten the Good Old Times and now only know the Bad Times.

As I get older, I have one recurrent observation that seems to get more and more obvious: People's spending habits are directly related to what they earn. The real and true Good Old Days of people paying cash for houses and cars are gone. "How much does that house cost?" has been replaced by "How big of a monthly payment(s) can I afford?"

Have no doubt about it. What goes up must come down. In fact, the higher prices rise, the more room they have to fall. It's Economics 101: Economic expansions are followed by economic contraction. It's been like that for several hundred years.

And this economist isn't convinced that higher interest rates will be the only thing to kill the hot housing market. In Japan, interest rates fell to zero and property prices didn't rise. A debt crisis can also have a profound effect on property prices. What is this year's projected annual deficit again?