Bubblicious

by Russ Roberts on April 21, 2005

in Prices

Is there a housing bubble?  Are prices here in the DC area and others that have been growing rapidly about to collapse?

I have no idea.

Neither does anyone else.

But I suspect there are a lot of market fundamentals at work along with any speculative phenomena.  Colleague Tyler Cowen over at Marginal Revolution suggests a variety of theories that might explain (without a bubble) the recent explosion in prices and gives solace and comfort to those of us who might have purchased at the peak.  But I think he missed the simplest explanation for why prices in the DC area have risen 73% in the last four years—increased government spending which leads to more people wanting to live in DC as either government employees or contractors.

As for the nation as a whole, check out these numbers from 2003-2004 growth.  Almost all the double-digit growth in prices is in warm places—Florida, California, Nevada.  Binghamton, Pittsburgh, Trenton and Toledo had single-digit growth or declines.

In a world of service jobs and increased access to broadband, it is increasingly easy to do your job or locate your company anywhere in America.  Colder places are going to struggle to compete with the warmer ones.  So even if overall prices have some speculative component driven by unseeable expectations, there is a method to the madness.

As a classical liberal living in the DC area, I would prefer a smaller government and a less valuable house.

Be Sociable, Share!

Comments

comments

Add a Comment    Share Share    Print    Email

Previous post:

Next post: