The latest Case-Shiller data indicate that housing prices increased in December for the 7th straight month. Most news accounts regarded this as good news.
But between 2000 and 2006, housing prices rose 80-90 percent, and they are still 35-40 percent above the 2000 level. If most of the 2000-2006 increase was a bubble, then housing prices should be lower, not higher, based on fundamentals.
In that case, the U.S. is continuing to overinvest in housing. So the higher prices are bad news.
This does not imply that policy should attempt to lower housing prices; it should just not care one way or the other.
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2 comments:
Factoring in inflation, regional demand, and population and economic growth is a must to determine 'fundamental price'. If there is such a thing.
I trust the market to adjust its prices to reflect the reality of these dynamics.
If prices are going up, then so be it. The market has spoken.
It seems like the government is going to do everything in it's power to assist homeowners - renters and savers be damned.
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