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The Real Estate Bloggers

The Real Estate Bloggers

Housing Bubbles Are Fairly Rare

Posted: 07 Feb 2011 04:24 AM PST

RobertShiller“May you live in interesting times.” – Ancient Chinese Curse.

The housing bubble and crash has been the story in real estate the past decade. From 2000 when there was a flight from the stock market to real estate through the bubble bursting in 2006 to the present malaise in the market, we have watched a historical period in the real estate industry.

It has gone from euphoria to despair but it has been interesting. And rare.

Robert Shiller, of Case-Shiller Report fame, had an article in the New York Times this past weekend talking about the historical significance of real estate bubbles in the United States. The combination of speculation and government intervention has been the significant factor of the such bubble burstings as the Panic of 1837 and the Panic of 1857. The last real estate bubble happened in the 1970s only to burst when the Federal Reserve clamped down on credit.

To think that we are only in the second real real estate bubble in the past 140 years is amazing to think about.

The question that Shiller did ask was how was consumer confidence in real estate effected? Here is that excerpt from the New York Times article:

With Karl Case of Wellesley College, who developed the S&P/Case-Shiller Home Price Indices with me, I have been surveying opinions of home buyers in the United States on and off since 1988. We have found a fairly steady downtrend since the early-to-mid-2000s in a number of speculative attitudes. On questionnaires, people are less likely to report that they think of housing as an investment, or to express the view that real estate is the “best investment.”

As an investment, in fact, they are more likely to see housing as risky. Although they still have solid expectations of home price increases over the next 10 years — a median of 5 percent annually, in nominal terms — those expectations have been declining and are not nearly as extravagant as they were before the market peak.

IT will take a while for the housing market to recover fully. Still, many people continue to think of housing as an investment, and so it does seem that we are in danger of encountering another whopper bubble someday. Even so, both the history of land bubbles and the slowness of shifts in public opinion suggest that such bubbles will be fairly rare.

So if you are a home owner or a real estate professional, remember this quote. “This too shall pass.”

While it may be pithy it also is very true. We are going through a terrible time for the real estate industry but soon it will be over and people will be back buying homes and seeing appreciation, albeit at a lower appreciation rate that in the past decade.

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Housing Bubbles Are Fairly Rare

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