the housing boom and bust

The New York Times has an interesting article on the psychological effects of the bust that followed the recent housing boom.

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”

Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

Dean Baker, co-director of the Center for Economic and Policy Research, [says] … “People shouldn’t look at a home as a way to make money because it won’t”. ….

For the first half of the 20th century, he [Yale economist Robert Shiller] said, … [h]ouses were seen the way cars are now: as a consumer durable that the buyer eventually used up.

The notion of housing as an investment first began to blossom after World War II, when the nesting urges of returning soldiers created a construction boom.

David Streitfeld, “Housing Fades as a Means to Build Wealth, Analysts Say”, New York Times, 23 August 2010.

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