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Wednesday, March 30, 2005



Thanks for the mention. I don't call it a bubble lightly - it takes both overvaluation based on fundamentals and speculation. A couple of years ago I started thinking housing was overvalued, but not enough to worry about. Now I'm concerned.

I think it is important to note that housing "bubbles" typically do not "pop", rather prices deflate slowly in real terms, over several years. House prices display strong persistence and are sticky downward. Since real estate markets do not clear immediately, what we usually observe is a drop in volumes.

Best Regards!

William Polley

Like Calculated Risk, I will begin by thanking your for mentioning my blog.

What I'm "not so sure" of is whether this is a widesrpread problem. In many areas in the midwest, for example, it might look like values are going up very rapidly because the building is taking place in wealthy suburbs. I don't see much speculation around here, but there are $300,000 houses going up like gangbusters with people living in them, not speculating on them. That's less of a problem. Of course, I'm not a broker or an appraiser or anything like that, but in my area the fundamentals don't seem too far out of line.

Quotes like the one about south Florida in the Times article that I posted, on the other hand, make me really nervous. Sounds like the 1920s.

In short, I think the real bubble is limited to certain types of properties in certain regions and is likely to stay that way until the air starts leaking out of the bubble. Calculated Risk's comment above seems on the mark.

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