by Calculated Risk on 8/12/2005 10:24:00 PM

The NYTimes suggests waiting for the experts to declare the bubble over in your area might be too late. Do Try This at Home: Assess Your Area's Real Estate Bubble

... the main driver of today's market is consumer psychology. Home prices go up as long as people expect them to go up.

When they stop believing, prices fall - and no economist in Washington can get wind of that faster than someone chatting over knockwurst at a neighborhood block party. "Economists looking at the macrodata will be the last to know," said Richard A. Brown, chief economist at the Federal Deposit Insurance Corporation.

The article gives some examples of slowing markets:

"It's taking a lot longer to sell a home," says Karl A. Martone, a Re/Max Properties agent in Providence, where homes now sit on the market an average of 65 days, up from 14 days a year ago. The region has almost six months of inventory, which is up 35 percent from a year ago.

Vicki Doran, a real estate agent with Coldwell Banker in Providence, says: "It's switching to a buyer's market. Last year buyers had to snap things up. Now they can shop around."

And an example of prices disconnected from fundamentals:

Take a look at the hot San Diego condo market. In Park Place, one of the many sleek towers of condominiums recently slung up around Petco Park, a one-bedroom condo is offered for $719,000. Someone buying it would expect to make mortgage payments of about $3,775 a month, plus monthly maintenance fees.

But someone really wanting to live in the high-rise, with hardwood floors, granite countertops and city views for a lot less, could rent a nearly identical unit in the same building for $2,400 a month. That is clear evidence prices have to move down.

The article goes on to give several indicators of when a market has topped. Rising inventories is at the top of my list right now. And on loan quality:

The popularity of interest-only mortgages could become one of the best indicators of a fragile market, several economists say. Mr. Thornberg of UCLA Anderson says it's a sign that lenders are scraping the bottom of the barrel. "We are close to running out of shills," he says.

But in the end it all comes down to sentiment. The entire article is worth reading.