Irrational Exuberance, the Real Estate Bubble and the Weakening of the US Economy


I found this chart at both the Northern Virginia Real Estate Guide and at HousingPanic, but felt that it was important enough that we also show it to you.

Click on the image to see it LARGER:

There are a few parts of the chart I find interesting. First, the run up in prices in the current decade is TWICE as large as the previous largest spike during the post WWII housing boom. That alone tells you how out of whack this build up is.

In addition, “new data also suggests that the market might be at the end of a cycle”, claims Robert J. Shiller, the economist who published the chart in his book, Irrational Exuberance.

The two lesser housing booms, which occurred during the 70’s and 80’s, are dwarfed by this “brobdingnagian housing bubble.” It seems like a really long way back down towards status quo pricing. I don’t want to sound like chicken little here, but I see no way that this market can sustain itself. I know too many people who are in homes they can’t afford because they fell into the frenzy of the market. I just worry that the collapse of housing can take the rest of the economy with it.

This is a very sobering economic picture that we face, and I hope that the we don’t end up like Japan of the late 80’s/early 90’s. The scary part is that their economy prior to the crash looks like ours does now. There was a period of high land and stock prices. . . the markets collapsed and the banks became riddled with bad debts. Many of their manufacturers moved overseas and unemployment jumped.

The thing that scares me most is that on top of the bubble, we’re faced with an $8.5 Trillion National Debt (was only $3.6 Trillion in 1999), we’re pouring somewhere between $5 billion and $10 billion a month into Iraq, and no one seems to know what to do with any of these problems . . . and then there is Social Security.

Try and ponder all of that for a while . . . I’m getting some Advil!

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


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