my guess is that eventually the home price rise from, say, 1995 to 2007 will turn out to be 90 percent due to a permanently lower risk premium and 10 percent bubble, rather than the other way around.
That is me, writing in September of 2007.
my guess is that eventually the home price rise from, say, 1995 to 2007 will turn out to be 90 percent due to a permanently lower risk premium and 10 percent bubble, rather than the other way around.
That is me, writing in September of 2007.
You’ve got a couple more clunkers than that to own up to, as you were remarkably bullish on housing at the peak:
“Real estate is, if anything, cheap today. In the short run, it may get a bit cheaper in some places, but I would not want to be sitting on a big short position in house price index futures.” August 2007
I think I sent this particular post of yours to a friend of mine back then, noting that while I was skeptical of your optimism, as I had been calling a housing collapse for a couple years, you had some expertise in the area and seemed to disagree with me. Of course, while I knew a collapse was coming eventually, I didn’t think it would be that year, so I was off on the timing.
I calculate 55% real and 45% bubble, so I guess that makes you about half right/wrong.
My calculation is pretty close to Lord’s — about 41% bubble. That’s measuring the bubble effect as the difference between the housing price index’s high in 2007 and its low in 2011, and taking that as a percentage of the increase from 1995 to 2007. That’s closer to 10% bubble than 90% bubble, so in that sense you were correct.
Also, might it be possible that some of the drop in price was not just collapsing of the positive bubble, but a “negative bubble” of sorts?
It really depends on location. If you take where we are now as ‘corrected’, adjust for inflation and population, and draw a rough line backwards to the steadier years before 2004, you can get a good ‘bubble gap’ estimate. If you look at Dallas or Denver – almost no bubble gap. DC and NYC did ok. Southern California was pretty rough, and Phoenix, Vegas, Miami, Tampa, and Detroit were insane.
In DC in particular, I think a lot of optimism is warranted for the preservation / appreciation of desirable real estate. I’ve said elsewhere that, were it politically feasible, the wholesale gentrification of the entire Southeast quarter (maybe 7,000 acres) into high-end town-homes, condos, and apartments would add many dozens of billions to the land value of the affected and surrounding area overnight despite adding significantly to the ‘desirable’ housing supply.
I think you have Detroit in the wrong category, Case-Schiller only has Detroit home prices going up by 10-20% before collapsing 50% in the crash, lagging everyone else in either phase.