Housing Bubble Update

HOUSING BUBBLE UPDATE….Sheesh. Housing prices aren’t just continuing to go up, they’re going up even faster than ever. I figure there are three scenarios:

  • The bubble will last forever. In a neat role reversal, my modest 2,000 square foot house will eventually be worth more than all of Tokyo.

  • The market will keep going up until my house finally hits seven figures, and will then pop. At that point, I will have to figure out if life is worth living with a house worth less than a million bucks.

  • Terrorists will nuke the LA basin, as they keep trying to do on 24, and it won’t matter anymore.

On a serious note, these figures are bad news. Nobody thinks the bubble can last forever; it’s only a matter of whether it deflates gracefully and mildly, or pops like a balloon. I’ve long thought prices would eventually flatten out or maybe decline moderately (say, 10% or so), but I’m getting less sure of that. As funding devices get ever more bizarre and price increases get ever steeper, the odds of a dangerous pop seem to get shorter and shorter. I expect much wailing and gnashing of teeth from next week’s Economist.

Of course, I’m hypersensitive to this because I’ve lived through one of these bubbles before. Back in the early 90s, housing prices in California dropped by nearly 30% when our last bubble popped. I personally ended up selling a house I bought for $172,000 for $129,000. It’s not impossible for that to happen again.