AILSA CHANG, HOST:

November was a good month in the housing market. The National Association of Realtors says U.S. home resales rose to their highest level in nearly a decade. At the same time, mortgage applications are up 3 percent in the past week alone. That's from a separate report by the Mortgage Bankers Association. So what's boosting this late-year surge of activity in the housing market? David Burson is chief economist at Nationwide Mutual Insurance Company and he joins us from his office in Columbus, Ohio. Thanks for joining us.

DAVID BERSON: Happy to be here.

CHANG: So explain this to us - sales are up, mortgage applications are up. What is happening here?

BERSON: Well, we continue to see pretty solid job gains and we see wages rising more rapidly. But maybe most importantly, we've seen over the last year a pretty significant pickup in household formations. And every new household has to live somewhere.

CHANG: Well, explain that. How is all of that happening at the same time mortgage rates are going up?

BERSON: Well, if you look historically, when interest rates go up it's typically because the economy is stronger, inflation is starting to rise, the Federal Reserve is tightening monetary policy. But that's where the economy is strong. And people buy homes when the economy is strong. Now, if you look historically, while growth now is weak compared to previous expansions, it certainly picked up relative to where it's been in the last few years.

CHANG: OK. So we're talking right now about people buying and selling existing homes. Are enough new houses being built?

BERSON: The question of whether there are enough homes being built I think is answered by what's happening with house prices. House price gains have been very strong, stronger than can be sustainable. Which suggests to me that not enough houses are being built and that we'd be better off with more being built and house price gains going up at a more modest pace.

CHANG: Is that going to get to a level where it's just not sustainable, that there will be regions where so many people just cannot afford to buy new homes?

BERSON: What we've seen nationally, house price gains over the last couple of years - that are just too rapid. And the biggest concern we have is in fact on affordability because of these price gains. And it's not in every city. I suspect that will be something that ends itself. When house price gains are too much and housing activity slows, then the house price gains themselves will slow. But that's a considerable problem in certain cities today.

CHANG: Is there a danger in those cities that people will be taking on too much debt to try to buy houses?

BERSON: It's only a problem if they can't pay it so if they lose their jobs or if house prices fall, though we're certainly not looking for declines in house prices, certainly nothing like we saw during the housing bust. But it does add to risk of people being able to repay their mortgages.

CHANG: David Berson is chief economist at Nationwide Mutual Insurance Company. Thanks for being with us and happy holidays.

BERSON: Happy holidays to you, too. Transcript provided by NPR, Copyright NPR.

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