Robert Shiller wrote “Irrational Exuberance” in 2000 warning of the internet stock bubble. In my opinion it is a must-read. He takes a look at the psychology and characteristics of different market bubbles around the globe starting with the tulip mania and ends with the Real Estate bubble in a chapter he wrote for his second edition in 2005. After Robert Shiller’s great timing in 2000, he has sometimes been ridiculed for warning about the possible bubble in home prices year after year even as the prices continuted to skyrocket. Finally the market is starting to take notice of what he has been talking about.
In his book, he talked about a home price index that was constructed in Amsterdam with over 300 years of data from 1628 to 1973. He writes “Real home prices did roughly double, but took nearly 350 years to do so…the annual real price increase was only 0.2%.” He released this graph in a paper he published later.
He includes this graph on his website along with a lot of great historical data.
I have updated his chart to show what the CME futures markets are implying about home prices.
Tuesday, January 29, 2008
Irrational Exuberance
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3 comments:
I've read both of Shiller's books. Very god reading imo. Another good read was "Sell Now" by Talbot.
Both Shiller and Talbot were ridiculed. As was I whenever I tried to question people about housing valuations.
Until recently, I was expecting housing to decline in a manner similar to your Case Shiller futures charts. However, I now think the decline is snowballing down hill. Psychology has turned decisively negative. I think a return to trend will be quicker than 2013.
Just thoughts.
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