Sep 27, 2012
CNN doesn’t seem to understand the concept of "bubble"
27 Sep 2012
Posted by Andrew Kantor
“Home prices may not return to peak until 2023,” is the CNN Money headline. The story is that housing prices may take that long to hit their 2007 levels — that is, the levels they were at the peak of the housing bubble.
This is news? During the bubble, property
values prices rose way above rational levels, and thus way above where they should have been. (“Should have,” being defined as where they would go if they stuck to normal levels of inflation.)
It’s as if CNN was expecting prices to look like this:
When in reality they’re going to look like this:
You can’t expect prices to hit 2007 levels any time soon. Home prices have, on average, tracked inflation. After the bubble burst, prices dropped below where they should have been (think of it as the pendulum swinging far in the other direction), and are making their way back to their “natural” state. At which point they’ll proceed to track inflation, barring another bubble or bust.
So if, like CNN, you were expecting the market to quickly make its way back to 2007 levels, think again. And give it time.