HOUSING BUBBLE UPDATE….How can you tell if you’re really in a bubble? One tried and true method is the Nexis test: how much is it being talked about in the news media? Is it becoming an obsessive topic?

Answer: In May 2003, the phrase “housing bubble” was mentioned 108 times. In May 2005 the number of mentions had more than tripled to 363. The housing bubble is pretty clearly becoming an obsession.

The chart on the right shows another way of looking at it. Early last year I mentioned that I was unsure of the bubble-icious nature of the California housing market because it was possible that recent increases were just making up for the downturn we experienced after the 1991 bubble popped. That no longer seems to be the case. As this LA Times chart shows, if you project 1988-1991 growth rates forward, you could argue that the bubble up through 2002 was indeed just making up for lost ground. Now that we have data for 2003 and 2004, however, that no longer looks so plausible. Prices are currently about a third higher than a straightforward projection justifies.

Now, there are reasons to think that Southern California real estate was due for higher growth. Population is increasing and housing stock is still scarce. On the other hand, the LA Times also points out that per capita income in California hasn’t increased since 2001. Overall, that chart looks pretty scary.

I sure hope it doesn’t pop as badly as last time, though. Back in the early 90s we lost about two years of price increases by the time the market bottomed out. If we lose two years of price growth this time, instead of dropping an average of 15% the market will drop by more like 25%. I’m not in the market to either buy or sell a house myself, but I sure hope that doesn’t happen.

For additional comments from a guy who’s putting his money where his mouth is, see Mark Kleiman. He’s selling while the selling is good.