The Federal Reserve Board doesn't think one can identify bubbles in realtime. Thus, the housing market today is as rational as 5, 15 or 35 years ago according to this widely praised brain trust.

Here's a Washington Post article about some economists who apprarently disagree with the Fed's pronouncement on bubble detection.

For the record, I've been wrong on real estate. I figured housing nationwide was approaching a peak in '03-'04 (you are correct in assuming I don't buy into the "real estate is local" garbage, historic low mortgage rates play just as well in Peroria as they do in NYC of SF). As Keynes once said, "Markets can stay irrational far longer than you can stay solvent." Good thing I didn't short the IYR.

Perhaps it was my subconcious deference to Keynes' warning or rather my belief in asset allocation, diversification and rebalancing for proper porfolio management. Either way, at my core I do believe we are setting ourselves up for at best slow to no real estate appreciation for many years to come. At worst, I think we could see downward price adjustments the likes of which no one outside of Japanese property owners in the late '80s has ever seen.

Here is my "shoeshine boy" evidence:

* Flipping is prevalent in the big city as well as the hinterlands
* People often buying simply because prices keep going up
* Any sense of value disappears, replaced by monthly nut calculation
* Illiquid nature of real estate belied by many properties being flipped multiple times pre construction
* Realtor licensing reaches historic highs
* Cocktail chatter dominated by real estate gains
* No interest loan options abound
* 125% financing available (note: you're still a renter Jack)
* Mortgages greater than rents for comparable or even smaller housingMy feeling is all the writing is on the wall if you just stop and take the time to read it. Why don't more of us stop to read it? Hey, this is the "ownership society" and thanks to Fannie and Freddie we all own homes. It's too depressing to think about losing a chunk of our paper "wealth".

Some reasonable minds simply call for a healthy correction. Given the enormous leverage involved and anecdotal evidence about people backing into monthly payments versus the old days of minimum 20% down, I don't see how this can just end in a healthy correction/pullback. I think it turns toxic.

If I haven't persuaded you, maybe this quote from the article will at least give you pause:

Nonetheless, Jennifer Tyler isn't worried. She just took out a 10-year, interest-only loan to keep the monthly payments affordable on her new Capitol Hill house.

"Anything can happen in 10 years," she said. "I can move, I can re-finance." She said that her interest-only mortgage, where no principal is paid for the entire 10 years -- and thus she builds no equity unless the house value increases -- saved her about $200 a month and made the difference between buying and not buying.

"Anyway," she said, "the house will almost certainly appreciate, too."