Tuesday, February 08, 2011

Housing Bubbles

Robert Shiller, the co-founder of the S&P/Case-Shiller Home Price Index, wrote a column in the Sunday business section of the New York Times about housing bubbles. He says that while there have been many localized bubbles through the years, a nationwide real estate slump has been very rare and when they do occur, they are not repeated for decades. He says that bubbles are impossible without extreme public enthusiasm and that surveys that still show many Americans consider housing to be an "investment" are disturbing (a house is not an investment; it's a place to live that depreciates in value over time) and that such an attitude, if it strengthens, would create a hospitable environment for another bubble. Shiller does believe, however, that a very active Federal reserve plus some of the reforms created by the Dodd-Franks law will make the return of a housing bubble even less likely anytime soon.

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