Housing Slump May Exceed The Great Depression
By Eugene S. Melchionne, Connecticut Consumer Lawyer on May 5, 2008 in Foreclosure News
It’s no secret that the current economic troubles were brought about by the bursting housing bubble. Professor Robert Shiller of Yale University performed a study of housing prices from the 1890’s to the present and found that the bubble was much larger than previously thought. The New York Times published an extensive article showing Professor Shiller’s results.
When placed on a graph, the data shows that housing prices have increased nearly 10 fold in the last 10 years. It also shows that the effects of the depression of the 1920’s lasted for thirty years.A home valued at $90,000 in 1915 (when adjusted to today’s values) did not regain that value again until 1946. By comparison, a home valued at $110,000 in 1995 (in today’s dollars) reached a dizzying height of $200,000 in 2007.
If history is any measure, housing prices could fall much further than anyone imagines. And if so, those values might not be seen again for another 50 years.
What changed? Sometime in the 1990’s, people began to see their homes in terms of an investment. A home is no longer a home, but rather an investment to be bought and sold and gains to be realized just like an share of corporate stock. During the sub-prime mortgage run-up, a large number of people borrowed against their homes to subsidize their lifestyles. Prior to the 1990’s, a home was seen more as a place to live and its value was not as important.
When financing real estate, consider the more important issues of whether this property is a home and place to live that you can afford. Forget about its future value because it may be a very long time before there will be any value to realize. A return to more traditional issues in real estate may do more good than any governmental action to prop up mortgage lending.
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