Posted on 06/12/2005 11:48:33 PM PDT by snarks_when_bored
US bubble set to burst
7 June 2005
House prices are rising so fast in 22 US states that they have created a "bubble" that could burst in the middle of next year according to two physicists (physics/0506027). The same team previously predicted that the UK housing market would crash in mid-2004.
Bubbles are formed in markets when large numbers of investors - often taking their lead from traders - start to buy more and more stocks and shares, forcing prices to artificially high levels. Such bubbles can also form in the housing market. And like real bubbles, these financial bubbles often burst.
After the "new economy" bubble burst in 2000, the US Federal Reserve decided to cut interest rates to just 1% in an effort to kick-start the economy. However, such low rates have historically been associated with an increased demand for houses. Two years ago, Didier Sornette and Wei-Xing Zhou at the University of California at Los Angeles (UCLA) analysed the US housing market. They concluded that although house prices were increasing rapidly, there was no evidence for the faster-than-exponential growth that often leads to the growth of a bubble.
Now, Sornette and Zhou have revisited their calculations, taking into account the latest data on house prices. The physicists analysed quarterly average prices for the US as a whole as well as in the Northeast, mid-West, South and West, and also in all 50 states and the District of Columbia (DC). They then formulated models to fit the data and identified clear-cut signatures of fast growing bubbles in 22 states. Moreover, the models were able to predict the critical turning point at which these bubbles might burst – after which time the high prices may slowly start to come back down to more realistic levels or stabilise at their current levels.
The scientists performed a similar analysis for the UK in 2003. "In that paper we identified an unsustainable bubble in the UK housing market and predicted that the critical time might be around the end of 2003 or mid-2004," Sornette told PhysicsWeb. "The UK house price index has experienced a drop since July of 2004."
The UCLA physicists say they will now continue monitoring other housing markets around the world for potential signs of bubbles. "Our work may have broad economic consequences because the real-estate market has played such a major role in the US economy's recovery," says Sornette. "For instance, the total real-estate debt for private home owners in the US is now higher than the federal debt, which is about 8.5 trillion dollars!"
About the author
Belle Dumé is science writer at PhysicsWeb
Where in NY do you live. I live in Yonkers and the prices are just crazy and getting like that in Eastchester and White Plains.
I bought a coop in Yonkers for 48K about a year ago. I put about 15K in imprvements. I have had offers at 130k and the same unit just across the way just sold for 139K.
Its crazy.
Could be.... but a real estate bubble doesn't burst in the same way that a stock market bubble bursts. It bursts in slow motion because real estate is not a liquid commodity.
Why? The assessor will still say the house is worth $1million, even if you can only get $500,000 for it. That is how the game works. It will take years before enough lawsuits and angry people make them change. After which they will dream up a new "fee" like stormwater to recoup their losses.
That seems odd. Is there a railroad track between your lot and theirs? Does the water flowing from their property collect on yours?
Yeah, I'm wondering if there isn't a McMansion to be picked up on the cheap in my future. While I don't think the overall GA/ATL market is overheated, like what I'm hearing for other parts of the country, I do think there are pockets / submarkets where it might be, and that's one of them.
I'd love to have a 3-car garage. ;-)
I live in Cold Spring, NY (keep it a secret, though). I have a sister in law that lives on Midland Ave. in Yonders and her 1 BDRM. that she got for $41 grand is well worth over 120 grand. And we have great friends that live on the other side of Yonkers off of David Ln. by Graystone train station and they have the same story but they made a lot of improvements on their condo an I would say it is worth a lot more, like over 150 grand.
In Wastechester, NY, where I am, you can't touch anything for less than 500K. 500K gets you a tiny cape with probably $6500/year in taxes.
I don't see how this can sustain itself unless we move even more towards latin America like conditions. Younger people and families will have no where to go. You will have no middle class and just the poor and wealthy. That's where it is going if this goes on.
I myself am looking for a home to purchase, but the prices are simply daunting. Even something moderately nice costs 750K with about 10k in taxes. Some people say - move! Its not thast easy when you have elderly relatives who are sick and need help and have your own business.
I am on Bronx River Road. Its just crazy. A single bedroom 750 sq. feet that was 50k a year or two ago is now 120K.
That neighboorhood always seems like its one mugging or shooting away from a riot. The animals over on ashburton and warburton sort of make me shy away from that area, even though it overlooks the hudson.
You are right with the Midland Ave address and I would say that you are for the most part on the river address. I can't stand driving down there either. I worry about the cars being safe because for the Midland Ave Address, my wife and I always have to leave our car parked in the Cross County mall parking lot. It sucks.
you ever been to Cold Spring? It is beautiful! I can walk around and not fear for my life and there are no blocks that are bad.
Alot of air force bases and light industry in and around Minot, but beyond that I have no idea.
Yes, we saw that the clinics were not getting that full 80k charged to the Blue Cross Company. I don't understand their reasoning on the billing either. Thank God we had the insurance in the first place. We felt indestructable before that happened. And of course none of us are.
I watch the home shows on TV that show freaking SHACKS in california selling for a million dollars.
It's insane, in my city they are tearing down homes like that as fast as they can because they are a blight on the community.
Whaaaaat?
You mean there is some other way of watch "A Clockwork Orange"???
This is putting downward pressure on resale property prices....which is a good thing.
I closed a sale last week...the BUYER received $1,000 at closing....on a $158,000 home.
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Why? A market value dip will not change the assessed value, the taxes will remain the same until addressed house by house.
Absolutely...and the property owner better pray that the appraisal district is run by Conservatives or even better Libertarians.....
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