Think about it. Historical average gains in housing are 2% per year, 3% tops.
By Daniel at 2 January, 2010, 2:29 am
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From 2001-2007, some housing markets gained 200-250%.
Math suggests these gains from 2001-2007 should have been 21% at the high end.
200% minus 21% suggests we should see a pullback in housing prices of much more than 30%, if we are returning to the averages.
A $180,000 house that appreciated by 200% from 2001 to 2007 would be valued at $540,000 in 2007. A decline of 30% (considered steep by some) would bring the price down to $378,00, a loss of $162,000.
But, considering that the house ’should’ have been selling (by historical norms) at $201,000 in 2007, instead of $540,000, that is a discrepancy of $339,000 NOT $162,000. This house, in fact, needs to decline $177,000 more.
The housing market is NOT the stock market. Housing MUST BE BASED on affordability factors (salary being the prime issue, interest rates also, to a minor extent). Housing appreciates 2-3% a year BECAUSE this is historically what salaries appreciate. This isn’t rocket science.
Wall Street tried to turn housing into another stock market — and we are now experiencing the results of that. We have to have prices return to the norm, or we all have to receive raises in pay and retirement pensions of 200%, so we can again afford American housing.
The geniuses on Wall Street miscalculated.
- Michael Clark
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