Wednesday, June 11, 2003

I've finally begun reading carefully the series on housing bubbles from the May 29 issue of The Economist. It is a very important collection of articles.
The 27% real price increase in American homes since 1995 seems modest compared with the gains in some European countries, yet it is the biggest ever seen in the United States during any cycle in the past half-century, and twice as large as the price gains during the real-estate booms in the late 1970s or the late 1980s.
Thus when we look away from the wild housing bubbles in cities such as New York, Los Angeles, San Diego and San Francisco and instead at what we might consider "modest" housing price gains over the past 5 years in some of the largest US cities (Chicago, 43%; Philadelphia, 43%; Phoenix, 34%; Detroit, 35%), it is important to realize that such gains are not modest at all.
in real terms, price declines of one-third or more are nothing unusual, examples being Australia, Italy and Spain in the early 1980s. Falls in nominal prices are much more common in big cities. Not only London but Boston, New York and San Francisco, too, saw prices drop steeply in the early 1990s.
Funny the article should mention these three US cities -- precisely the ones at greatest risk today as well.

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