Housing Bubble Burst?

Paul Krugman seems to believe so. Check out his complete column in the New York Times online (free registration required).

I live in what Krugman describes as the “Zoned Zone”, a few miles north of D.C. in Wheaton, Maryland. While a townhouse in my neighborhood recently sold for about $400,000, it took 2-3 weeks. I think they started out asking for $450,000 and had to drop the price some. Another bit of information I got, which supports Krugman’s idea somewhat, is a conversation I had with a realtor a month or two ago. He was essentially trolling my neighborhood for people interested in selling their townhouses and I asked him about some new ones being built (a 5-10 minute walk from my townhouse). He said the price tags on those went as high as $800,000, but that the builders were having to rent them out because they couldn’t sell them at that price.

Between this information and the increasing popularity of interest-only loans, real estate prices have to come back to earth sooner or later.