The Future of Housing Prices

The runup in housing prices of the past decade is historically unprecedented, and the bursting of the housing bubble, if that’s what it is, has so far brought prices down only slightly. See the charts here. (HT: Megan McArdle) Why have prices soared since 1998? The increase seems far out of proportion from the general price level, population growth, increases in regulation, etc.

UPDATE: Of course, I could be wrong:

An intriguing new analysis by a University of Washington economics professor argues that home prices have, perhaps inadvertently, been driven up $200,000 by good intentions.

Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities.

4 thoughts on “The Future of Housing Prices

  1. Uh, people have realized that renting from the bank is better than renting from the slumlord, and economic factors have supported more home ownership?
    More people own stocks and mutual funds now, too.
    This question seems akin to asking why literacy rates were up after Gutenberg.

  2. It has to do with the HUGE drop in interest rates. The buyers were paying similar amounts per month, but more of it was going to the sellers instead of to the banks. Then when the interest rates rose again, the housing market imploded because the prices hadn’t changed much but the actual amount one paid for a house had.

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