leifw

Princeton University economics professor and NYT op-ed columnist Paul Krugman claims in a recent piece that the residential real estate bubble is beginning its slow deflation. He points to the San Diego market, where the inventory of homes has doubled over the last year, as the canary in the coalmine.

While I hope that Krugman is right, I'd like to mention a few caveats. Firstly, San Diego has had one of the most impressive run ups in housing prices. Krugman's article cites that SoCal city with the highest metropolitan real estate growth rate at 118% over the last 5 years. To say that the San Diego will drop is not necessarily to say that the nation will. Furthermore, Krugman points out the difference between an area like Dallas, which has few natural boundaries, and an area like Seattle, which is carved by natural boundaries. The areas with boundaries have seen significantly greater increases in prices than those without. Analogously, even if the air begins to come out of the squeezed metropolitan markets, housing deflation may not appear in the unobstructed areas.