We have become accustomed to think of falling home values as a sign of a city’s slow death. (Think Detroit.) We think of cities and suburbs that remain vibrant as being immune from that kind of drop. The common assumption is that eventually, after a downturn, prices will swing back. But, in fact, the long-term data we have is very inconclusive. The centurylong view shows us exactly two periods of marked increase, and none of decline. But an even longer view does show a decline in the early years of the 20th century.
If home prices merely stop falling right now, then the price advance of the 1990s would still represent a dramatic jump from historical values of the sort that that we have seen only once before (in the 1940s). The home-price optimists, like the National Association of Realtors, persist in the idea that prices will “return” to the peaks of 2006. But there is no reason at all to think that they have to. They may return to where they stood in the late ’90s (which would mean that they still have a further to fall) or to some point in between. It’s even imaginable that the housing market could stagnate long enough to reverse some of the historic advance of the early postwar years.
Is this long-term downturn likely? Frankly, we don’t think anyone can tell you with any certainty. We’re engaged in an almost unprecedented social experiment with how people react to falling asset values. Will the generation that watched housing boom and bust conclude that housing has become cheap enough to finally start bidding it up again? Or will they be so scarred by the damage inflicted on our economy and individual lives that they’ll rent, buy cheap and avoid as much debt as possible?
We’re hoping he’s Gimein isn’t right. The confidence that came with ownership of appreciating homes no doubt helped create some of our past prosperity. There may actually be positive externalities to homeownership, although skeptics have a good argument that those are outweighed by the costs of increasing ownership. It would be a shame if this was gone for good.
Tag Archives: John Carney
Will someone kill Bernie Madoff? Carney points out that some of the people who lost big with Bernie are the type who don’t take losing well: Russian oligarchs, Colombian drug lords, tax evaders, etc. I don’t want to be too melodramatic here, but I’ve pointed out before that Walter Noel and particularly his sons-in-law seemed to specialize on peddling the FGG magic beans to the same crowd. If, as Carney speculates, angry losers can reach Madoff in a prison cell, can it be that much harder to find the guy on a sunny beach in Spain or, God forbid, a bucolic stretch of fly fishing water on the Madison?