[FoRK] Like all manias

Kelley kelley
Sat Jun 18 07:57:29 PDT 2005

I thought some of you would find this commentary interesting. It's on one 
of the myths that feed the real estate bubble:

 From Alan Abelson's column in the current Barron's:

"Like all manias, the housing bubble has been fed by myths, not a few of 
them manufactured by the sharpies peddling houses or the financing to 
purchase them. One of these myths that has gained remarkable currency is 
there has never been a year in which home prices have gone down since the 
end of the Depression (during which, it's rarely mentioned, they fell by as 
much as 30%). Frankly, we were pleased as punch to come across the 
accompanying chart in the latest edition of the Liscio Report, put out by 
that estimable duo, Philippa Dunne and Doug Henwood, that lays to rest this 
egregious canard.

What it shows quite clearly is that, using a house-price index compiled by 
the Office of Federal Housing Enterprise Oversight (OFHEO) and adjusted for 
inflation, home prices do go down. The beauty of this index, as Philippa 
and Doug note, is that "it's a repeat-sales index, meaning that it tracks 
successive sales of the same houses." Because OFHEO's index begins only in 
1975, it doesn't capture all the years house prices have declined and, most 
particularly, the "savage'' drop suffered in '73-'74.

Next time some wild-eyed friend who is thinking about buying another home 
on spec (he already owns three) assures you the price of a house never 
declines, smile politely and start talking about the weather or whether the 
Washington Nationals are for real. But be very careful: He's got the kind 
of fever that's highly contagious.

Philippa and Doug point out that the first quarter of this year saw the 
market value of residential real-estate shoot up for a record 40th quarter 
in a row (the previous record was 34 consecutive quarters, set in 1969). 
They also point out that the gap between house prices and household income 
is now at an all-time high. But not to worry, there's no bubble."

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