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At Long Last . . .

07/20/2012

The last boom was powered by residential real estate.  The last bust then followed the value of residential real estate as it fell . . . and fell . . . and fell for a long six years.  Last month, the chief economist of the National Association of Realtors announced that residential real estate had found its bottom and would start recovering, which would eliminate a huge drag on the economy.  I looked at his research and found nothing I could disagree with.  Now, take a look at this chart:

This chart shows home prices over the last 42 years.  Note that the recent collapse in home prices took us all the back to the level of home prices in 1985.  Also, note how sharp the recovery is — 20% of the loss in home values has been recovered in the last five months!
Record low home mortgage rates have certainly helped.  Minimal new home construction also helped.  But, most of all, the mere passage of time helped.  It was the longest and most painful collapse in modern history. Free markets may be painful . . . but they do work!
If I had any children who were renting and stable enough for home ownership, I would put them in my car and  drive them to see a realtor today.

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