A Different Take on the Bubble and Return to Pre-Bubble Pricing (with graph)

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Submitted by jmrrobbie1 on October 21, 2009 - 3:46pm

http://www.dailyfinance.com/2009/10/21/h...

The article makes interesting points and he does make a definitive call on a return to a new baseline of a housing market norm... with some questionable assumptions?

First - he indicates bubbles have generally a symmetrical up/down pattern and the housing bubble will follow similarly... I think the Japanese 1990s economy would indicate otherwise. The return to a pre-bubble baseline has too many additional factors such as a tighter connection to the global economy, government intervention, and wholesale manipulation.

Second - is housing truly a unique asset...REALLY! All assets are unique and none can be predicted with any short term accuracy/precision. The reason people get caught repeatedly in bubble cycles to begin with. Herd mentality is addicting.

Third – another view of a large & pent-up shadow market… time will tell of this as I think several have pointed out different views but no one has really pinned this down yet.

The consumer price index is at a low in the last decade. A number to depict on the nationwide scale but the sentiment that home prices do correlate directed to rent pricing which again are tied into the consumer pricing index can have a strong regional influence - S. Calf a prime example.

Again – an interesting article with good points. If the bubble timeline he illustrates in the graph does lead to a 2014 return – we are in for a long haul.

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Slight correction needed. The
Submitted by SK in CV on October 21, 2009 - 4:32pm.

Slight correction needed.

The CPI is not falling. It is at it's highest level ever, save for 4 months in the middle of 2008, and as of September, at it's highest level for calendar year 2009. It has been essentially flat for the last 4 months. It's moved pretty slow the last 10 years, but it's still almost 30% above where it was 10 years ago.

SK, I agree with you.
Submitted by Diego Mamani on October 21, 2009 - 4:37pm.

SK, I agree with you. However, many people who say "CPI," in reality mean to say "CPI inflation," or "change in the CPI." Maybe the article meant to say that the rate of increase in the CPI has fallen.

Of course, many of us think that CPI inflation will accelerate sooner rather than later due to all the liquidity in the system (stimulus and bail out money, essentially).