This time is different
As a culture, there are certain things we want to believe. Particularly when it comes to the economy, our collective beliefs are often more powerful than underlying fundamentals. This is why we obsess over consumer confidence measurements. It's also where terms like irrational exuberance and animal spirits originated. For a profession that obsesses over mathematical equations and wants its work to be recognized as rigorous in the same way that physics is rigorous, the role of collective belief in economics is as profound as it is unpredictable.
We collectively believe that the decade 1997 through 2007 represented a housing bubble. We also collectively believe that the years 2011 through 2016 represent a housing recovery. Same mountain peak, two different names, each based more on belief than actual data.
Click through for chat and data from Zillow.
I had to shake my head this weekend when the Wall Street Journal shared a story titled Why Housing Will Spring Ahead with the subtitle: Conditions are right for the housing market to finally shift into higher gear. They laughably use 1996 as the starting point for what they call a "normal" housing market, essentially ignoring the prior century of housing what....anomaly? From the article:
It is over a decade since the housing bust began, nearly seven years since the recession ended, and the U.S. housing market isn’t close to what historically would be considered normal. Last year, a combined 5.1 million new and used homes were sold in the U.S—not quite as many as in 1998, when the working-age population was one-fifth lower than it is now.
Those of you that want some context on "normal" can watch this video of the Case-Shiller between 1890 and 2010 as depicted by a roller coaster ride.
Housing recovery? That's one way to think about it.