"Bigger fool theory" points to Housing bubble in many markets

I heard this on the NPR today and I thought it was an interesting take on speculators and speculation.

The story being discussed was whether or not there was a bubble in the real estate markets in certain regions (california being one). This interested me as it was an idea leading economist (and my brother) Dr. Luke put forth a number of times quite forcefully to other Californians we encountered on our vaction last week. A lot of leading economists have apparently fallen into line stating that a "bubble" existed in certain regions accross the US.

They quoted the bigger fool theory. The idea was that investors are now buying houses in certain areas not for usage gain by renting or occupying, but rather to sell them at a higher price to the next buyer. Hence they are looking for a "bigger fool".

They went on to talk about the fact that rental prices are remaining consistent in the area, but home values have in some cases more than doubled. That suggests that home values are artificially high in some areas.

I know to say that homes are artificially overpriced in California is no suprise to any of my friends in California, but the fact that it is now being seen as a problem by economists who are know loudly voicing these concerns does indicate there may be some real blood letting in some real estate markets in the near future. Buyer beware.