I’ve read all of Rich’s articles, and hundreds more on the San Diego real estate market. I’ve also read quite a bit about asset bubbles. I understand they all pop (by definition).

Do I think that the 2000-2006 real estate bubble is the only asset bubble in the history of the world which does not correct? Of course I don’t. But this bubble could correct without nominal prices dropping. And, for someone selling, renting, and buying again, nominal prices are what count.

The spike Rich illustrates in his June 7 voice article is a spike in the ratio of home prices to per-capita income. For this ratio to return to normal, there has to be a drop in nominal prices, or an increase in wages, or some combination thereof. The question is: how much of each will occur? If most or all of the correction comes in the form of increased wages, then someone who sold, rented, and bought again will not have made several hundred thousand dollars for his trouble. And, as I said, they’ve paid maybe 30k or 50k in real estate commissions, increased their property tax by several thousand dollars a year, paid to move at least twice, and will probably have to borrow at higher interest rates the next time.

Do I think most or all of the correction will come in the form of higher wages? I think that there’s a good chance that it won’t. But I don’t think it’s anywhere near the sure thing that you make it out to be.