Editore"s Note
Tilting at Windmills

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April 13, 2004
By: Kevin Drum

HOUSING BUBBLE....Housing prices in LA continue to rise meteorically:

Home values in Los Angeles County posted the biggest year-over-year increase in at least 15 years in March as frenetic buying activity pushed the median sale price up 29%, to a record $375,000, according to data released Monday.

Confounding predictions by the experts, sales were surprisingly strong, jumping 12% from a year ago to 10,875 new and resold houses and condos. Analysts and brokers said the heavy demand was driven by anxious consumers, many of whom are paying more than the asking price to get in the housing market before interest rates rise and supplies thin further.

(Italics mine.)

I don't care what anyone says, including the happy talk analysts quoted farther down in the story: this kind of panic buying is a sign of a late-stage bubble. It's true that bubbles usually last longer than skeptics think they will, but this one has been firing on all cylinders for a while now. I doubt there's more than a few months or a year left before it bursts.

And for all the people who claim that it's impossible for prices to go down because California's population is increasing and demand keeps going up, it ain't true. I bought a house in Irvine in 1989 for $170,000 and sold it in 1994 for $130,000. That's despite the fact that population was increasing back then too and Irvine was a very desirable location. Housing bubbles have burst before, and they can again.

On the other hand, the early 90s housing bubble is also good news in a way. We have had a housing bubble in Southern California before, and when it burst the sky didn't fall. It was no fun (especially for me), but the economy picked up anyway and there was no lasting effect. Whether the same will be true if there's a nationwide bursting of the bubble remains to be seen.

Kevin Drum 12:00 PM Permalink | Trackbacks

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