His timing may have been a bit off, but the price differentials were massively off! I bought a house in 2003 and sold last summer, in Seattle. Even with Seattle prices, I made a lot of money. I ignored the acedemics because they weren’t the ones controlling prices, people were.
The problem with acedemics, and some economists, is that they pay too much attention to the fundamentals. Yes, fundamentals are important and they will bite you, and bite you hard. But people are important too.
In 2003 the prices were going up, and the vast majority of people (not economists or acedemics) were expecting the price to go up more. So they bought, and so did I. In mid-2005 onwards, the prices were going up still, but the expecatations had changed because people were changing their opinion – they were starting to believe that prices could no longer go up. I remember a study that said the the occurrence of the word “bubble” as it related to real-estate in the major press peaked in June of 2005. If enough people (the market movers) believe that prices have peaked, prices have peaked.
I believe, and I’m not alone, that it is the expectation of future gains that drives substantial price increases. It wasn’t interest rates, although that helped, and it wasn’t the lack of land. Fundamentals be damned, well at least until all the negative-amortization loans reset… 😉
