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Thursday, June 02, 2005

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?

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