Back in 2003, the bubble was just hitting it’s stride
True, but the reasonable perception at that time was different. Have a look at the graph that Rich posted in his latest Voice of SD column:
In terms of median house price/median income, a peak was met in 2002/03 that was the equal of the two previous peaks. People who were paying attention, reasonably, called it as a peak. We were incorrect in that prediction, as a number of factors (loose credit, aggressive sales tactics) kept the runaway train on its tracks. That doesn’t mean that it wasn’t the best prediction at the time, it only means that it didn’t turn out that way. And the fact that it didn’t turn out that way does harm to our position of authority on the matter. Sure, the argument from authority is a logical fallacy, but that’s what most people are going by.
I am concerned that you have given up on economic cycles, as you suggest “maybe the bubble won’t burst and prices won’t drop”.
I agree that the bubble bursting is the best prediction, easily. But the best predictions don’t always come true, just as they didn’t in 2003. I can’t think of what tricks are left to keep things on course, but that doesn’t mean something won’t happen at least to keep current prices propped up for awhile.
And if the deflation of the bubble occurs as I expect (a slow process that will take years, with occasional market rallies in reverse of the overall trend downward), we will hear again and again about Chicken Little. No, I do not believe in a soft landing: I expect a significant decline in prices over the next several years.
