Mr. Bubble's Worried Again

The New York Times reporter DAVID LEONHARDT has a story in today's paper explaining why Robert J. Shiller thinks this is not only a bubble, but one that could deflate prices by as much as 40 percent. Of course, such a bold prediction is certain to draw criticism. The grapic pictured above was published in The New York Times today as well. Here's an excerpt from the story:

"Shiller is predicting the mountain goes into the sea," Robert I. Toll, the chief executive of Toll Brothers, a home builder, said in a recent interview, without having been asked about the economist. "He's selling himself."

To Mr. Shiller, though, it is a question of history, not salesmanship. Most people have never looked at decades and decades of home prices, because such data have been almost impossible to find. Stock-market charts often go back almost a century. Housing charts typically start sometime in the distant decade of the 1970's.

But Mr. Shiller has unearthed some rare historical housing data for other countries. Using old classified advertisements, he was then able to fashion a chart for the United States that goes back to the 19th century.

It all points to an unavoidable truth, he says. Every housing boom of the last few centuries has been followed by decades in which home values fell relative to inflation. Over the long term, the portion of income that families spend on their shelter stays about the same.

Be sure to read the whole story at this link.