The housing market may continue to see declines throughout
this year, and may finally bottom at a level that is about "50
percent of its peak from early 2006," says Yale professor and
housing economist Robert Shiller.
As measured by the Standard & Poor’s/Case-Shiller Home
Price Indices, housing prices have plummeted nationally more
than 40 percent in real inflation-adjusted terms in some major
cities since the peak around the beginning of 2006.
Nationally, the decline is more than 25 percent. Another 15
percent drop is coming this year, said Shiller.
"Why are we seeing such big price drops?" Shiller asked,
rhetorically, in his syndicated column. "The boom in the
world’s housing markets and stock markets between 2003 and
2006 was caused by the idea that investments in homes and
equities are a sure route to wealth."
"It had become an article of faith that the value of both
types of assets only goes up in the long run, and that it is
foolish to try to 'time the market.'"
Shiller said economists sincerely believed that
interruptions in this upward trajectory could only be small
and transient.
"People seemed to think that rapid appreciation in these
markets had become a universal constant, like the speed of
light," Shiller added.
This belief was spread by the "world culture" created by
the Internet, so it was shared globally, not just in the U.S.
and in the U.K., which have historically had a shared culture.
But, after the market peaked three years ago, lenders
tightened their standards.
When buyers found it difficult to finance home purchases,
sellers had to trim the asking price. This sort of tightening
has been seen before in economic fluctuations during the last
two centuries.
"The boom just before the depression of the 1870s sounds a
lot like what happened just before the current crisis," said
Shiller.
"People will believe many things if they have the
impression that the rich and famous believe them, too. But
their belief can suddenly be disrupted if plainly visible
events contradict it. That is what is happening now, and 2009
will shape up as a year of even more profound disenchantment."
Some economists, however, disagree with this gloomy
forecast, and see upside to the current downturn, especially
now that interest rates are at historic lows.
"For those who could refinance, December offered an amazing
chance to save some money," writes economist Mark Lund of
Stone Creek Wealth Advisors, in a research note published
Tuesday.
© 2009 Newsmax. All rights reserved.
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