Reply #57: When you have an area that moves from a position of

[Gormy Cuss]

high appreciation rates to high foreclosures in short order,say 2- 4 quarters, that's a bubble bursting. Similarly if an area goes from high appreciation (say 20% year to year) to negative appreciation in a few quarters, that's a bubble bursting.

What is happening in most markets is that appreciation has slowed, and/or the rate of foreclosures has increased but not to the point where there are MANY properties losing value or going into foreclosure as a percentage of total properties. That is why the image of a bubble bursting is less appropriate than a bubble with a slow leak. I was commenting on the inaccuracy of the "bubble bursting," not the health of the residential real estate market. On a national level, there's no question that the residential real estate market is long out of the go-go phase of recent years.

I live in a state where the foreclosure rate is 60% higher than last year, which sound disastrous until one reviews the long term data -- that enormous increase just brings the state back to the level where it was four years ago and the foreclosure rate is still substantial lower than the 20 year average. So, the foreclosure rate has increased (never a good sign) but there has been no corresponding decline in market values. Rather, the market values have failed to sustain the 20% year-to year rates and are instead at 6-11% in most major markets. There had yet to be a decline in value because the pent-up demand is so strong.