Following up on CR’s post, I wish to provide a few links to the recent report from Richard DeKaser on “housing bubblettes” including a CNN summary that was fixated on the notion that housing was undervalued in Salt Lake City but overvalued in many Californian cities. My first reaction to this CNN story was not to load up the truck and move away from Beverly Hills (no offense to the folks in Salt Lake City intended). I guess I had on my efficient markets glasses this weekend and I often wonder if the difference between the market price of an asset and some model’s prediction of that price is more of a reflection of the model and not some statement about investor irrationality.
One-fifth of the nation’s housing market is significantly overpriced, but the overall market is financially sound, new industry research shows. “There is no ‘housing bubble’ in America,” said Richard DeKaser, chief economist for National City Corp., a Cleveland-based financial services company. “There is a growing risk of ‘bubblettes’ in certain places.”
National City Corp. provides this summary and the entire report can be found here by going to the bottom of the page and looking under Housing Valuation Analysis for the link. Do I trust market rationality or DeKaser’s model? Revealed Preference gives you the answer since I still rent in LA.