Mapping the bubble: where are the biggest ones?

Some Bubbles are just Good Enough.

...the price of my house is higher not simply because the demand for my house is higher, but because the demand for houses in the general area is higher, and that demand is due to several factors, not the least of which is the limited supply of houses in walkable neighborhoods. (italics added)

That's an interesting suggestion.

Has anyone mapped the bubbles? What are the environmental characteristics of bubbles? Is it true (above) that the walkability of a neighborhood is an indicator of recent value increase? It seems to me that any forecast about whether we are in a bubble and whether it will end in a burst has to pay some pretty close attention to the location and character of bubble neighborhoods. If there is a correlation between big increases and unique physical circumstances well that's a pretty good indicator that there will probablynot be a burst. Morningstar, the fund/stock analyst, pays a lot of attention to "barriers to entry" in a particular industry. The same thing applies to real estate markets.

Comments

[Brian Miller]

Interesting question, David. However, the bubble effect in the Bay Area is so extreme, it is inflating outer suburban counties that are hardly walkable-Solano County rose 23% in ONE YEAR.

I think it's simply supply and pent up demand, along with (still) cheap money.

[Randy Paul]

The Times had an article a few weeks ago and one of the points they made in NYC is the availability of commercial entities nearby (i.e. grocery stores, hardware stores, etc.). The consensus was that areas that did not have much in the way of such entities and had housing prices surge were likely to pop. The East Village was a prime example to them and I'm inclined to agree. It grew rapidly through gentrification and the sense that it's much more trendy to live in Manhattan regardless of where you live in Manhattan.

I haven't had it appraised lately, but my 900 square foot 2 bedroom one bath co-op with three exposures in Jackson Heights which I bought 4 years ago for $110 K is probably worth about $200 K judging from the sale of other apartments in the building recently. The benefit here in Jackson Heights is that we can live here without needing a car. Grocery shopping doesn't even require that we cross a street. The area is heavily tree-line in a historic district and people are still pouring in here. No one appears to be flipping properties a la Las Vegas or LA.

[David Sucher]

The consensus of stock market investment advisors is that the amateur cannot market-time effectively and that over the long run a buy-and-hold strategy (admittedly with some culling & rebalancing) makes most sense.

I suspect that it would be the same for real estate. Maybe the lesson is that even these days, if you want to own your own home and can afford it and expect to be there for at least 5-7 years, then you might as well buy now. Yes, prices may come down. But maybe not much if at all in desirable neighborhoods. There is no historical or logical reason to expect a long-term decline in housing prices. When I was a boy in NYC in the 1950s there was a perceived housing shortage -- same as now.

[joe o]

I bought a house two years ago. I am happy we did but I think there is a bubble, especially here in the bay area. The bay area goes through booms and busts in real estate. We are nearing the end of a big boom so there is going to be a big bust. I am not too worried because I plan to stay in the area for the long haul. But, it will be a big problem if I lose my job in the next 10 years.

You are right about the timing issue. I thought the bubble would burst along time ago.