Repeat after me: a house is not an investment. Just ask the tallest female econoblogger on the planet: Incidentally, if you think that people still have a vestigial view of housing as an investment asset rather than a consumption good with residual value, this implies that housing will substantially undershoot as well. But wait, there’s more from Megan McArdle:
But as Robert Shiller, the Yale economist, has pointed out, this is a very new idea. For most of history, a house was simply a very long-term durable good, which, like cars and refrigerators, began depreciating the day it was finished. Why do we think differently now?
Shiller’s argument, which I find pretty compelling, is that we’ve been deluded by recent history. Since World War II, a number of developments have conspired to boost the prices of homes, giving a large capital gain to those who were lucky enough to own at the time. This has given us the delusion that house prices rise steadily, when in fact, we have virtually certainly exhausted the pricing gains of those happy developments.
Housing as an investment is pretty much financial literacy for the intellectually lazy.