[Link to Excerpt 1: (1) Is this a short soundbite or a longer conversation? (2) How conflicted are your information providers on this topic?]

Excerpt 2 from Sell Now! The End of the Housing Bubble:
"...Robert Shiller of Yale University in the second edition of his book, Irrational Exuberance has gone back over one hundred years and has adjusted reported home sales prices for general inflation in the economy. In addition, he has kept the quality of homes constant by examining the prices that a single property sold for over time in numerous sales transactions. [Figure 2.3 in Talbott's book, "Long-Term Real Housing Price Index After Adjusting for Inflation," shows real housing prices from 1890 to 2005 and normalized to a base of 100 in 1890. Prices on this chart show that housing prices went on to trade between a range of 60 and 125 over the next 107 years before they dramatically broke out of that range in 1997...and currently are in the 185 range.]

There are really two rather shocking conclusions that can be drawn from [a chart of real, inflation-adjusted housing prices]. One, housing prices recently [over the last nine years] have appreciated significantly in real terms after adjusting for inflation, and two, housing prices have been relatively stable for the hundred years prior to 1996. The second finding, that real home prices have been so stable, surprises us, because we mistakenly believed that they were not only volatile, but ever-increasing.

The flatness of the real historical price data tells another important story. Whenever a boom in real estate has occurred in the past, it was eventually followed by a bust: real prices always returned to normal levels. It is not fair to say that the current boom will fully reverse itself, but it is accurate to say that if it does not, it will be the first time in a century that a boom in real prices actually stuck."

In addition to the flatness of the real price data, the chart shows how large the recent price move has been relative to history. A 50 percent real price increase may not sound big to people familiar with 15 percent inflation, but, remember, these are "real" increases already adjusted for inflation. Real productivity increases 1 to 2 percent a year, real wages are lucky to grow at 0.5 percent per year, real population growth is close to 1 percent a year, and here we are talking about a 50 percent increase in real home prices since 1997. This is quite a different order of magnitude. You can judge the magnitude of this increase by contrasting it with the historical volatility of the real housing data prior to 1996. As seen in the chart, it was unusual in the past for historical real housing prices to exhibit more than a 20 percent increase, and as we said, these increases always turned out to be temporary.

Shiller's work is important because it shifts the debate from having to explain why housing prices have always appreciated historically to why, in real terms, they never appreciated until the last nine years. This presentation of the real price data seems to be very strong evidence of a housing bubble. For housing bulls to claim that there is not a bubble they must produce reasonable explanations of why home prices that were relatively flat for a hundred years have suddenly shot up. I will explore some of their possible theories in chapter 5."
(John Talbott, author of Sell Now! The End of the Housing Bubble, pp. 26-28)

Join the Wharton Club of Northern California on Thursday, April 27th as we present two talks by John Talbott--one in San Francisco over lunch and one in the evening in Palo Alto--and hear in more detail what the implications of this breakout really are.

Register online for the evening event in Palo Alto. [Note: click here if you wish to register for the luncheon event in San Francisco.]

Date: Thursday, April 27th
Time: 5:30-6:30pm. Reception with appetizers. 6:30-8:00pm. Presentation and Q&A
Place. Palo Alto Research Center (PARC) Directions 3333 Coyote Hill Road, Palo Alto, CA 94304
Fee. $35 each for WCNC members and their accompanied guest(s). $55 each for non-member alumni and other guests. $35 each for members of affiliate clubs. $10 additional after 5:00pm, Monday, April 24th and for day-of-event registrations, if available. Cancellation after 5:00pm, Monday, April 24th at the discretion of the WCNC.
Copies of the book are available for $10 each but must be ordered by April 18th at 6:00pm. Click here to order a copy of the book and pick it up at the Palo Alto evening event or here for pickup at the San Francisco luncheon event.