I still contend that we are not in a housing bubble.

The drop in the real interest rate of one percentage point from 3 percent should have raised the intrinsic value on stocks and houses by 33 percent! So, if house prices in your area have gone up 33 percent in the past two years, that may seem dramatic, but it is not out of line with the drop in the real interest rate. Incidentally, the Dow Jones stock average, which was at about 7600 when I wrote the article, is about 33 percent higher today, also.

For Discussion. My essay argues for interest rates rising relative to market expectations. Typically, in an efficient market, the risk of rising long-term rates and falling long-term rates would be fairly symmetric. What are the scenarios under which long term rates would fall?