The New York Times this morning has this analysis of housing as an investment. They are coming on board to the view that recovery from the supervaluation of residential real estate that has exploded in the years since its peak in 2005.
In fact, I've argued this point since I wrote an article for Money magazine in 1987, as I was skeptical of the behavior of my fellow (at the time) Californians. They made the eternal growth assumption and were starting the trend of taking out additional loans against their houses to pay for expendables such as cars, vacations, big screen tv's, etc.
I'm sorry to blow my own horn here and I feel enormous sympathy for homeowners who have lost so much in the recent past. Many of my good friends in California are in this position. They have been swept up in the societally accepted story/myth/wisdom of eternal market optimism. This concept that we follow stories rather than facts is well described in George Akerlof and Robert Shiller's book of last year, Animal Spirits.
As part of my skepticism on the Brazilian economy, I have expressed a number of times my concern that we are following the First World in belief in this myth of eternal growth in real estate. I believe the conditions exist here for the housing bubble to burst just as it has done elsewhere. Problem is, our economy is relatively more fragile and our prosperity of much shorter duration than the U.S. or Europe. The impacts of burst bubble could return us to the instability of the 1980's and early 90's.
Read this article. It's worth your time.
