Robert Shiller's Wall Street Journal Editorial

Robert Shiller has an interesting editorial in today's WSJ about the real estate bubble. According to the Case-Shiller home price index from Fiserv CSW, Inc., real home prices in the U.S. have had the following history since 1996:

1996    -0.50%
1997     2.10%
1998     5.40%
1999     5.40%
2000     5.80%
2001     5.80%
2002     8.10%
2003     8.50%
2004    11.20%

Based on those numbers, a home purchased in 1996 for $200,000, would now be worth $329,527, for an average annual increase of 5.71%.

Now compare that to the Los Angeles market:

1996    -2.70%
1997     4.10%
1998    10.30%
1999     4.50%
2000     7.70%
2001     7.90%
2002    16.90%
2003    19.20%
2004    23.20%

That same $200,000 house purchased in Los Angeles in 1996, would now be worth $465,826, for an average annual increase of a staggering 9.85%!

It is a very interesting editorial. (NOTE: I was going to put a link but at the moment the WSJ online is down, I'll add the link later today). One quote from the article that I thought was particularly good was:

"The biggest uncertainty, for many of us, is just that this pattern of home prices looks like a mass-phychological phenomenon called a bubble. The trend is creating the trend, as more and more herdlike investors notice the trend and pile into the market." Does this remind you of anything?

Tags: Real Estate Bubble, Robert Shiller