Sam Zell: "I'm no Pollyanna; I'm the Gravedancer."

NEW YORK (MONEY Magazine) - Q. Your companies own more apartments and offices than anyone. And you've been nicknamed "the Gravedancer" for your ability to correctly read the boom-and-bust cycles in real estate. So if anyone knows the answer to this question, it's you: Is the bubble about to burst?

A. I'm 63. I've been in the business 40 years. I've heard about all kinds of "housing bubbles," and I ain't seen one yet.

There've been short periods when single-family-housing prices fell, but the number of examples of that are really small. A bubble by definition goes poof -- the way so many tech stocks did in 2000 -- and there's no value left.

Housing prices, though, are always connected to fundamentals, like the amount of buildable land. A house has intrinsic value.

Q. But U.S. home prices are up about 40 percent in three years. How can this not be a bubble?

A. Econ 101: Prices have gone up because the demand has been much greater than the supply. The country is producing all it can in terms of supply, but what you see is more demand. Over the next 10 years we're going to add a million new households; much of that's due to immigration. There are lifestyle influences on demand too.

Over the past 25 years, for example, marriage has been delayed eight to 10 years. It used to be Harry and Sally would graduate college and get married. Now everybody gets married late. Instead of Harry and Sally owning one house in exurbia, you now have two people buying. And think about the longevity of the boomers; they continue to buy.

Q. Is there anything you're worried about?

A. I do think we're likely to see the growth of housing prices slow in the next five years, compared with the past five. We've had a significant uptick in prices, fueled by low interest rates. But it looks like we'll see higher rates over the next five years, so demand will go down and you'll see slower growth in pricing.

Q. How bad could it get?

A. Worst-case scenario? A flat housing market. Look, all I can tell you is we're the largest owner of apartments in the U.S. and among the largest converters of apartments to condos. If there was a danger of a bubble, would we be in this business? I've never been accused of being a Pollyanna; I am the Gravedancer.

Americans don't understand that we have the cheapest housing in the world. London and Tokyo are more expensive than New York. Why do you think everyone is going to South Florida from Europe? It's because prices here are cheap compared with there.

For more real estate tips, check out Open House with Gerri Willis.

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