I wanted to save this chart for posterity:
The original chart (up through 2006) comes from Robert J. Shiller‘s book Irrational Exuberance, which predicted the collapse of the housing bubble in its 2nd edition. Shiller helped design the Case-Shiller index of house prices. Some enterprising web type has plotted the last three years on his chart and added a dotted line to project the return to normal.
The text says: “The Yale economist Robert J. Shiller created an index of American housing prices going back to 1890. It is based on sale prices of standard existing houses, not new construction, to track the value of housing as an investment over time. It presents housing values in consistent terms over 116 years, factoring out the effects of inflation.”
The scary part is that it looks like we’ve got another 50 percent to drop before we hit the post-WWII average of 110-120.
The scarier part is that market corrections can overshoot, usually depending on how high they flew to begin with. We’ll probably see houses become undervalued at some point in the future. How many more years of decline will that take? Five? That’s not a comforting thought.