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June 8, 2005
Evidence of regional housing bubbles
Calculated Risk links to this interesting paper by two physicists on the real estate bubble. Being that the authors are physicists, the model is more physics-like than economics-like, but don't let that stop you from taking a look. There are advantages to looking at bubbles through a physics lens, at least to try to identify them--and that is what the authors do. I'm not sure how far I'd try to run with the analysis (as far as predicting when the bubble will burst), but it is interesting to see what the data says.
Calculated Risk displays a map from the paper showing the bubble states and the non-bubble states. According to the authors, Illinois (along with a good swath of the midwest and south) is a non-bubble state. Of course, there is good reason to be wary any time housing prices get above their fundamentals in large areas of the country. Even in areas where there is presently no bubble, the situation bears watching. There is a frenzied nature to the market in places like California and Florida that is unsettling indeed.
Posted by William Polley at June 8, 2005 12:35 AM
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