Perspective: Housing Bottom Nowhere in Sight
The market will undoubtedly over-correct to the downside.
Normal: Being approximately average or within certain limits; typical.
Abnormal: Not typical, usual, or regular; not normal; deviant.
Which definition is the best represents our economic situation today?
As soon as we can stabilize housing, all of our troubles will be solved. This is the mantra we hear night after night from financial pundits. The chart below unmistakably paints an abnormal picture of home prices.
Karl Case, of the S&P/Case-Shiller Home Price Indices, has studied US house prices going back to the 1890s. Over the long run, he says, home prices tend to increase on average at an inflation-adjusted rate of 2.5% to 3% a year, about the same as per-capita income.
The American population has steadily increased from 100 million to 300 million over the last 120 years. Home prices gained at an uneven rate from 1890 until 2000. But -- thanks to the greatest bubble in history -- prices after 2000 doubled in many places in 6 years, versus a 15% expected historical return.
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