TimesToCome

Going up or going down?

Depends mostly on where you live, I suspect. Housing tends to boom then bust in small micro areas, yet over the long period and over a large area it barely keeps up with inflation. Pieter Fransz studied home prices in Amsterdam from 1625 - current times. The return over the long haul was .2% year. But while a home took 350 years to double in price the first time, it took only 22 years to double the second time. In the aftermath of the plague and tulip bulb market crash the house dropped 36% in value.

In Japan speculation drove prices up to highs of 140K/sqft at the height of the boom in 1989. By 2004 price drops of as much as 90% had set in. Real estate crashes happen over months and years as prices stay flat rather than rise with inflation. Sometimes, as in Japan and the 1987 crash in New England bring actual price drops.

Real estate crashes are sometimes triggered by natural disasters, economic disasters or price to income getting too far out. House price to yearly income should be less than 3.5. So if the average salary in a place is 50k per year, the average house price needs to be 175k or less. This assumes 30 year mortgages at 7%.

Housing booms occur when economic conditions improve increasing migration into an area, when local wealth increases; when interest rates drop and when loans become easier to obtain. Booms in general occur when it becomes easier to invest in something or when government regulation is not in place or is loosened.

More information:
From Dutch history, a real estate lesson

The Housing Bubble