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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Amy J who wrote (8796)2/10/2003 11:02:52 AM
From: Elroy JetsonRead Replies (3) of 306849
 
Try an example where incomes decline. Let's say a 20 year period where inflation rises 2% per year and incomes remain the same. In real terms that means they decline 2% per year.

After 20 years you might expect real estate prices to be 48.6% higher. But I can assure you that real estate prices would be unchanged in nominal terms and 33.2% lower in terms of (inflation adjusted) real purchasing value.

On a more insightful level, you can be certain that unusual periods of time during which real estate prices rise more than incomes are certain to be followed by a correction.

The late 1980s and the most recent eight year time period are examples of this type of imbalance.
A rise in real estate prices higher than incomes is followed real estate prices declining relative to incomes, as certainly as day follows night.
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