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.


  1. "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.

  2. 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.