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On the Bubble or About to Land?

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From policy wonk round tables to living room party chit chat, just about everybody loves to talk real estate. Today's LA Times piece about the UCLA Anderson Forecast's assessment of the California real estate market gives us new material.

Some potential outcomes are disquieting for the economy at-large. In the words of Christopher Thornberg, Senior Economist on the Forecast team, “the best-case scenario is mediocre.” Because real estate and related industries have propped up our regional economic recovery, the market bottoming out might be worse than if other strong sectors were in place to cushion the fall. However, many currently disheartened buyers have been waiting for the crash might this situation's mediocrity benefit them.

We found a few other facts to be startling: two percent of all working-age state residents are licensed real estate agents and brokers (423,000); half of the new 243,000 non-governmental jobs created since 2003 are related to real estate (construction, mortgage companies, etc.); and approximately 10% of all private sector jobs are in this field.

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And home prices continue to rise. The median home price increase of “21.1% to $425,000 in February as four of the six counties in the region logged new records in year-over-year price,” according to today's Times Business section.

We logically understand the market can’t continue this three-year pattern, simply because home prices are so hugely out of step with rises in real income. What do the armchair real estate theorists out there think? Are we in for a bubble-bursting or a soft landing?