I think there is, and prices will fall at least 50%, maybe more, in most areas.
There are lots of technical reasons, but here is one that I find fairly compelling.
This is a random house near an area I grew up in LA. So I know this area very well. These are typical post WWII construction tract houses in an area that is best described - ok'ish. I wouldn't personally want to raise my kids there. You are going to have a mix of some fairly well kept houses, and some dumps, on the same street.
Now, when these houses were new, I think they sold for $20K or so. I'm not sure when they were built, but say the mid 50s or so.
From that time onward, they followed a fairly typical appreciation line. Probably averaged 5-6% per year or so, some years more, some years less.
This steady line goes on for FIFTY years.
Now, suddenly, from 2004 to 2006, the house's value supposedly goes from roughly $300K to over $1 million.
How can this NOT be the product of a speculative bubble?
The typical answers don't seem to work:
"They aren't making land anymore" - Really? Did they just stop in 2004?
"So. Cal. has great weather, desireable place, etc." That also seems to have been true for the past 50 years.
It seems to me the only response is that we are in a "New Market," there has been a "paradigm shift" or something like that.
But has that ever happened with housing in any time in history? Or even with any other asset class?
The house in my example could go down 60%, and that would only take it to $400,000. That doesn't seem unreasonable at all to me, because:
1) That's still a lot of money for a house in that area (I wouldn't pay $400K to live there, and $1 million is laughable).
2) $400,000 would still represent tremendous appreciation for the house from 2000 to the present.
So, does anyone think the value of houses like this will stick?