Tyler Cowen asks, does DC have a housing bubble, and asks how can we justify the price rise:
Housing can be lived in, most buyers have only one home, transaction costs are relatively high, and rarely are homes sold and resold in a matter of days. All those features militate against a housing bubble. Yet it is scary to see how high prices have risen in the Washington D.C. area. Prices in my overall region are up 73 percent in the last four years, can houses be worth so much more? Plus rent-buy ratios have reached apparently unsustainble levels, inconsistent with traditional assumptions about discount rates.
I’ll offer up a reason #5 for his list: You believe that the government grows at the drop of a hat, and shrinks only as a result of heroic effort. The ‘compassionate conservative movement’ is about using the government to achieve goals, not to create a level playing field. If these are true, we can expect government to grow for at least the next 3-4 years, creating increased demand, and driving prices upwards.
I hear people all over talking about houses as investments; believing that they can’t ‘really’ lose money, that the tax break for mortgages makes anything you can finance a good deal. Anecdotes are not evidence, but when I look for evidence against the idea that there’s a national housing bubble, it’s in short supply.
[Update: Forgot to link to the article. Sorry!]