On-line betting markets do a pretty good job of predicting the non-market future (e.g., elections). From the NYTimes (Online Betters ...):
The Internet has allowed these betting markets to flourish, and their predictive power stems from what the writer James Surowiecki calls "The Wisdom of Crowds," in his recent book of that name. When people take the time to study something and then put their money where their mind is, their cumulative intelligence can be cunning. As long as there are enough prognosticators, they gather their evidence independently and their backgrounds are diverse, they often do better than individual experts who have spent years studying the subject.
But how well do they do when predicting market outcomes? Say, the housing market?
Now one of these markets [Hedgestreet] has turned its gaze to a consumer activity that is a favorite discussion topic these days: real estate. And the bettors see no signs of a bursting bubble anytime soon.
San Diego? Prices will rise another 5 percent in the third quarter, according to the bettors at HedgeStreet, another Web site. New York? They will inch up 2 percent. In Los Angeles, they will jump 7 percent. In each of the cities, as in San Francisco, prices will be more than 10 percent higher than they had been a year earlier.
HedgeStreet began accepting bets this year on house values in a handful of major cities. In the weeks leading up to the release of new numbers from the National Association of Realtors, bettors can buy contracts that make a payout according to a metropolitan area's average price.
The higher that average ends up being, the more that the contract pays. So the contract's price tells you what investors, as a group, expect to happen. When the San Diego contract rises in value, it's because traders think the upcoming house prices will be high and the contract's payout handsome.
Or is Hedgestreet's betting market in a bubble?
With real estate brokers in some cities reporting that home sales have recently slowed, it might be tempting to dismiss HedgeStreet's bullishness as yet another signal that the nation's love affair with real estate has become a dangerous obsession. Many economists - including Richard J. DeKaser, chief economist at National City, a large mortgage lender, who has compared home values to population and income in every large metropolitan area - insist that many home prices are irrationally high.
Even Russell Andersson, a co-founder of HedgeStreet, which is based in San Mateo, Calif., calls the current betting market a reflection of housing euphoria. "Personally, I think we are cresting," Mr. Andersson said. "I think the market may be more likely to go down by 20 percent than go up by 20 percent."
And, relatedly, here is Professor Schiller's chart on housing prices from the Sunday NYTimes (Be warned ...) [what bubble?]: