A View from David Appell

Housing Bubble

If you’ve been trying to buy a house recently on either of the U.S. coasts, you’ve probably been shocked at both prices and their rates of increase. There’s much speculation that the market is in the midst of a “bubble,”…

  • June 8, 2005

If you’ve been trying to buy a house recently on either of the U.S. coasts, you’ve probably been shocked at both prices and their rates of increase. There’s much speculation that the market is in the midst of a “bubble,” with the real question being when it’s going to burst. Now two researchers have published a paper that states that (1) yes, 22 U.S. states are experiencing a bubble, and (2) it’s probably going to burst around mid-2006.

Didier Sornette’s and Wei-Xing Zhou’s analysis differs from just two years ago, when there was no sign of the faster-than-exponential growth characteristic of a bubble. Their conclusions are strengthened by their successful prediction of a housing bubble in the United Kingdom in 2003, where housing prices began dropping in July 2004. Their analysis is nifty, and the mathematics are simple and straightforward. “Soon” might be a good time to sell.

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