Courtesy of John Fleck, a pointer to an article in which Dan Gillmor comments on the California Housing Bubble. Now, my parents were living in CA in the sixties and decided that buying a house was a risky investment. Their little bungalow that they rented for, oh, fifty dollars a month, and could have bought for a pittance, became a $1M teardown, and is now a $5-10M gated palace you can’t drive near. But it’s hard to make that kind of judgement in advance: nobody knew then that San Diego would become anything more than a pretty little Navy backwater. After all, there’s plenty of sunshine all over the country.
People want to live in desireable parts of the world. Manhattan, California, Boston, Northwestern DC. But the fact is, if Tokyo, with all its limited space, can have a crash, anyone can have a crash.
Look at it this way: it doesn’t have to be worthless to be overvalued. Lots of people still live in Tokyo, and lots of people still want to live in Tokyo. It’s still insanely expensive to live there. It’s just not as expensive as it was in 1998.
Or take Gold for example. It’s valuable. Everybody loves gold. There is an increasing demand for it as increasing numbers of people in the world want shiny things. Is it worth $500 per ounce? Or $400? It can be overvalued even if its intrinsic value is high and will continue to rise.
As my own experiences have taught me all too well, love and real estate tend to drive people to totally irrational economic decisions.
Secretly Ironic 