Gooch's dad
04-12-2008, 07:31 PM
Yale professor Robert Shiller has gotten a lot of press for his 1999 book, Irrational Exuberance, which discussed the huge stock market bubble in the U.S. More recently, he has been pointing out that the U.S. housing market is in an even bigger bubble.
Of course, nobody can tell for sure if a bubble is real, or when it will "pop". But a good measure of whether the housing market is in a bubble, is the inflation-adjusted price of homes over the past century or so:
http://www.safehaven.com/images/lamont/6242_c.gif
Shiller constructed that chart for home prices from 1890 to 2006, and it is utterly clear that housing prices since 1995 have shot up as much as 70% or more over the long-term average. A couple of other things are apparent from that graph--someone who bought a home in 1908 had to wait until 1946 for their home to be worth more than it was when they bought it. This happened again between the mid-50's and the late 70's.
I've talked to people many times who insisted that buying a home is *always* a good investment, because housing prices "always go up". They have since the late 70's, true, but to extrapolate "they will always go up" from that is pure lunacy.
Yes, I own a home. I also fully expect that it will go down in value for many years, now. I'm not going to sell it, because I need a place to live, and it would take quite a drop for my house to be worth less than my mortgage. But I'm tempted to sell it, if I move back to CA this fall.
If housing prices have risen as much as 70% above inflation since 1995, then they would have to drop over 40% to return to a reasonable price. If that does happen, my house would be worth a bit more than my mortgage, but not by much.
This is what happened in Japan after their housing bubble--for 15 years, housing prices dropped steadily. I don't see any sound reason why it wouldn't happen in the U.S. in the same fashion.
Of course, nobody can tell for sure if a bubble is real, or when it will "pop". But a good measure of whether the housing market is in a bubble, is the inflation-adjusted price of homes over the past century or so:
http://www.safehaven.com/images/lamont/6242_c.gif
Shiller constructed that chart for home prices from 1890 to 2006, and it is utterly clear that housing prices since 1995 have shot up as much as 70% or more over the long-term average. A couple of other things are apparent from that graph--someone who bought a home in 1908 had to wait until 1946 for their home to be worth more than it was when they bought it. This happened again between the mid-50's and the late 70's.
I've talked to people many times who insisted that buying a home is *always* a good investment, because housing prices "always go up". They have since the late 70's, true, but to extrapolate "they will always go up" from that is pure lunacy.
Yes, I own a home. I also fully expect that it will go down in value for many years, now. I'm not going to sell it, because I need a place to live, and it would take quite a drop for my house to be worth less than my mortgage. But I'm tempted to sell it, if I move back to CA this fall.
If housing prices have risen as much as 70% above inflation since 1995, then they would have to drop over 40% to return to a reasonable price. If that does happen, my house would be worth a bit more than my mortgage, but not by much.
This is what happened in Japan after their housing bubble--for 15 years, housing prices dropped steadily. I don't see any sound reason why it wouldn't happen in the U.S. in the same fashion.