[meyer]

Exactly. No one would have bid that $200K house up to a million if they didn't think that some other sucker would come along some day, and give them two million for it. What collapses bubbles is that markets eventually run out of suckers.

To be honest, this is a very locality-based issue. My sister bought a new house in Clermont, Florida for about $106,000 in 2002, and resold it 3 years later for $200,000. That's the type of market that fits your description. On the other hand, I had my house near Chattanooga for 5 years (2001 - 2006) and realized about a 12% gain. Slower market, but I've noticed that prices are steady in that market, especially when compared to the more speculative "hot" markets like in Florida, California, or along the east coast.

Location, location, location...

[hunter112]

You're certainly right about that, location is indeed everything. Now as to the house your sister sold for $200K in Florida, would the present owner get anywhere near that? I just went to Florida earlier this month, and reading between the lines in the news accounts and real estate ads, and there's desperation in that state. Your sister got out while the getting was good.

It can be argued that the events of 9/11 affected only New York City, the Pentagon, and a field in Pennsylvania, but indeed, it can be argued that it ultimately affected every part of our nation. I think the bursting of the housing bubble in the overpriced regions has at least the same psychological effect on the rest of the country.