Can anyone who seriously studies the housing market have thought that home prices were "always going to increase"?
That prices are stationary doesn't mean there isn't the potential for a bubble, and as Kiyotaki and Moore (JPE,
1997) show, collateral constraints and the dual role of housing make a
bubble in home prices all the more likely. But the idea that experts
really thought home prices were always going to rise can't hold water
after looking at that the picture above. To pull from an excellent SNL skit- "Really? You thought the value of home prices would never go down? Really!"
I think that current U.S. housing prices (median home price) have fallen about 15% from their peak. This chart implies that they need to fall another 25% (a total of 40% decline) to reach the level that prevailed from 1955 to 1995. So I guess the moral of the story is to short house prices over the near term.
I think you're right. Any ideas on how to do this besides buying credit default swaps like John Paulson?: http://online.wsj.com/public/article/SB120036645057290423.html
Fellas - Greetings! Great site!!!
I don't know half a crap about REITs, but could you short them to offset the risk in housing?
Considering, we just, just bought a house, obviously this is a topic I'm concerned with.
Thanks for taking the time to hash out this, I feel strongly about it and love learning more on this subject. If possible, as you gain expertise, would you mind updating your blog with more information? It is highly helpful for me.