Across America residential property is booming, generating concerns of a housing bubble that will collapse in the way that some stocks have. A bubble, though, is only one possibility. Another, overlapping, explanation for the new market for houses is that homes have become a refuge in times of uncertainty. Indeed, in a paper published this month by the Milken Institute, Susanne Trimbath and Juan Montoya argue that housing has supplanted gold as the premier financial hideout. This analogy sheds some light on the differences between this and the 1970s, the previous period of uncertainty. It is also useful when it comes to the all-consuming bubble question.

The home-as-gold thesis makes sense today but, as the authors point out, "safe as houses" was not always the rule. Nervous Nellies used to put their money in more traditional havens: diamonds, certain paintings and, above all, gold. Consider the 1970s, and even the early 1980s, when America was a land of trouble. Inflation raged. Entire cities faced bankruptcy. In the early 1970s, before the formal break-up of the Bretton Woods gold-exchange standard , it was illegal to buy and sell gold. But people did the next best thing: they collected stocks in mining companies. Later, after President Richard Nixon closed the gold window, gold prices soared above $800 an ounce.

In the same period, of course, people did buy houses. But they bought them as a place to live and not a financial refuge. We know this because Americans' investment in housing was, at that time, about the same as their level of investment in equities. This parity obtained when they got richer. It also obtained when stock prices declined: when Americans were poorer, they held less of each.

Something changed in the 1980s. When the Dow or gross domestic product turned down, people bought more property. When the Dow rose, they bought more in stocks than homes. Citizens beg an to see houses as hedges. In the 1990s, since stocks did so well, houses were a less popular alternative: housing as a share of family holdings went down while equity holdings as a share of wealth went up.

The same see-saw relationship shows up more dramatically in the recent period: equities markets have plunged and houses have jumped. To judge by the numbers, houses have turned out to be a fine gold substitute: they have appreciated (6 per cent in the last year alone) while the old "barbarous relic" still costs less per ounce than it did in 1983.

There are, though, a number of other explanations for American behaviour. The first is interest rates: today's rates are among the lowest ever seen in the adult experience of Americans under the age of 45, making home purchases wildly attractive. Most working Americans know that their parents once bought homes at interest rates of 6 per cent or less but until recently that story seemed a fairy tale. Now those same rates are accessible - without the threat of a margin call.

A second force behind the boom is America's tax structure. Before the passage of the 1986 tax reform, Americans could avail themselves of a number of tax breaks: interest payments on credit cards were, for example, deductible. With the 1986 law, most of these breaks were abolished and the main remaining break was the mortgage interest deduction. Recently, too, home owning has been sweetened with a generous exclusion that means that most Americans w ill pay no capital gains tax when they sell their houses.

None of this, though, can completely explain the new house lust. In fact, one reason houses are more popular as wealth receptacles than gold is because houses have become a bit more l ike gold than they used to be. In the olden days housing stock was close to the opposite of a commodity. It was not fungible; it was relatively illiquid; and you could not put it in your pocket and carry it across the border.

This last rule still holds but the others have softened. Today, mortgages are securitised and there is a national housing market ("realtor.com"). Second mortgages, points out the Amer ican Institute of Economic Research, used to be unheard of; now Americans can and do unlock the value in their homes by borrowing against them. In other words, houses have come somewhat closer to being a liquid commodity.

There is danger here, especially because the two government-sponsored agencies that have done the securitising, Fannie Mae and Freddie Mac, so dominate the market. While Fannie and Freddie are not part of government, it would be hard for Washington not to bail them out should the housing market collapse like WorldCom. And that bail-out would cost many billions more than the federal government's last great rescue action, that of the savings and loan crisis in the early 1990s.

Nonetheless, the house-as-refuge trend also reveals a giant positive that stands in contrast to the 1970s: today there is little fear of inflation. Americans are so sure of the dollar 's stability that they do not mind holding something that can be denominated in dollars and nothing else: their house. And, most crucially, we have to remember that whatever changes have occurred in the housing market, it is still not identical with the markets for stocks and gold. Houses are still hard to unload overnight.

There is also the emotional factor: a house is still, inherently, more lovable an object than a cold metal or a stock certificate and so is harder to part with. This means that the ho using market - areas with astral prices, such as San Jose and Manhattan, excluded - cannot be as volatile as the others. In other words, while house prices may sag and sag, they will not pop.

© Copyright 2002 Financial Times