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Sunday, February 06, 2011

Shiller: Housing Bubbles Are Few and Far Between

Robert Shiller argues that we shouldn't expect another housing bubble anytime soon (there's quite a bit more on the history of land and housing bubbles in the article):

Housing Bubbles Are Few and Far Between, by Robert Shiller, Commentary, NY Times: What's the outlook for home prices over the next decade? It’s not easy to tell. ... This enormous housing bubble and burst isn’t comparable to any national or international housing cycle in history. Previous bubbles have been smaller and more regional.
We have to look further afield for parallels. The most useful may be the long trail of booms and crashes in the price of land..., although bubbles over large areas have been rather rare. Those with the biggest national impact were in the 19th century, when speculators found opportunities that had been created by government land sales and by shifts in land prices set off by construction of canals and railroads. Stories of fortunes in land speculation captured the imagination, and led to bubbles. ...
The entire 20th century appears to have had only one farmland bubble of national significance — it occurred in the 1970s. ... So land manias have been rather infrequent, many decades apart. They suggest that the recent housing bubble is a similarly rare event, not to be repeated for many decades.
But, of course, the relevance of this long history isn’t entirely clear. In contrast to the 19th century, when the business cycle proceeded without much constraint, we now have the Fed and an active government housing stabilization policy... And ... the Dodd-Frank law ... is supposed to go even further to prevent instability. ...
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. Add the new policy restraints, and a new national housing bubble looks even less likely anytime soon.

    Posted by on Sunday, February 6, 2011 at 12:12 AM in Economics, Housing, Market Failure | Permalink  Comments (14)


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