Saturday, November 26, 2005

Bubble Market Defined

There are a huge number of bubble markets across the USA. What is a bubble market?

A bubble market is any area where residential real estate prices will decline more then 20% in real dollars [inflation adjusted] over the course of 3 years. In most bubble markets, the peak price was reached in June, July or August of 2005.

Many bubble markets will experience real price declines much greater then 20%. Some may experience price declines of 60% in real dollars over the next 3 years. Of course some markets may keep on declining for more then 3 years.

9 comments:

  1. Now, how do we figure out how these declines will affect non-bubble areas, if much at all?

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  2. Re the above -- I have an agenda. I want to buy in a non-bubble area. Buy in 2005? But later? How much later and why?

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  3. A decline of 20% or more over a period of three years would seem a fair amount of correction. It some areas however a decline of 30% or more is highly likely.

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  4. "It some areas however a decline of 30% or more is highly likely."

    I agree. Bakersfield, is likely to price declines of between 45% - 65% in real dollars over the next 3 years.

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  5. This comment has been removed by a blog administrator.

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  6. If history serves as a harbinger of the future, the midwest has had the most 'stable housing market' over the years. Prices have increased, recently even in the heartland however not the type of parabolic rises seen on the coasts, and NV, AZ and FL. I would think it would be safter to buy in Dayton Ohio then in Phoenix or Northern VA. The fall in prices would be much less.

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  7. In defining a bubble, it may be useful to compare the costs of renting to the costs of owning.

    In Silver Spring, MD, the costs of renting my apartment have risen about 50% since 1999. The cost of buying a house have risen about 2-300%, and a condo even more than that, over the same period. Those kinds of discrepancies make me pretty sure we are in a bubble here.

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  8. Thanks for the encouraging words on Bakersfield?!?!? Unfortuanately we are in for a rough ride here! Once the LA & SF speculators leave our town its going to be UGLY!

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  9. Condo's and SFH standing longer and longer on the market in Connecticut- it will usher a economic downturn here- the plus side is that it will be less traumatic then the more severe bubble areas.

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