The elevation of real estate to another faith-based topic best not discussed in good company was probably inevitable, if an American scholar of investor behaviour is right.
A couple of years ago, Robert Shiller circulated a paper that says an unprecedented number of property buyers and sellers in the first years of this decade shared a certainty about the inevitability of price appreciation supported by neither evidence nor experience.
"While home-price booms have been known for centuries, the recent boom is unique in its pervasiveness," the Yale University professor of economics and finance wrote.
"Dramatic home-price booms have been in evidence since the late 1990s in Australia, Canada, China, France, India, Ireland, Italy, Korea, Russia, Spain, the United Kingdom and the United States, among other countries.
"There appears to be no prior example of such dramatic booms occurring in so many places at the same time."
Shiller is the developer, with Karl Case, of a widely circulated index of American real-estate values.
The "Case Shiller" index's inaugural value was 100, for January 2000. Its highest value was 206.5, reached in July 2006. Its lowest value, 140, is also its current value.
The index records 78 months of increasing U.S. prices followed by 32 months of decline. On the way up, the average monthly change in the index was almost 1.4 per cent; on the way down, almost 1.9 per cent.
No "fundamentals" -- monetary policy, for example -- drove international real estate prices up, Shiller says.
Instead, "extravagant expectations for future price increases" lifted them, an extravagance he attributes to an apprehension that "a new era of capitalism . . . is producing phenomenal economic growth, and . . . both extreme winners and unfortunate losers."
Further, "fundamentals" will not reverse, by themselves, "large real-price declines extending over many years in major cities that have seen large increases."
Shiller doesn't say a change in certainties is required, but it clearly is, from faith-based to experience-informed.
-- Canwest News Service
