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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (2714)	3/23/2004 1:55:25 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 116555

Real estate bubbles usually do have a sound underlying basis in the beginning. You outline many of the factors behind the current bubble. Available credit does enable these prices to exceed rational pricing, but only because human behavior is the driving force behind the bubble. You can determine the prices are bubble-esque particularly by comparing prices relative to rents. While real estate prices have increased, rents have declined making these investments irrationally low in comparison with comparable investments - even though the returns on other investments have declined. Real estate has long been susceptible to periods of euphoric pricing. Here's a chart of the value of real estate transactions during the real estate boom of the 1880's in Los Angeles County. At the end of that bubble, real estate prices declined by 80% to 90%. home.pacbell.net