Monday, July 11, 2011

Bubble Illusion

University of Oregon economics professor Mark Thoma writes:
A couple of recent conversations have convinced me that many people have "bubble illusion." When they talk about how much they have lost on their houses and in the stock market, and how that has affected their feelings of economic certainty, etc., the losses are almost always expressed relative to the peak bubble value rather than to a realistic assessment of what the house or stock was actually worth during the bubble years.
It does seem to me that whenever asset values are below their peak, people compare them to the peak. When the peak was a bubble, they're not thinking rationally.


  1. Speaking, of peak, June sales stats are out.  It appears that in Arlington, Alexandria & DC are all again at (or within 1% of) peak prices.

    You really have to feel bad for the immunozone buyers.  At the early 09 bottom, median prices were a mere -10% off peak, so it was reasonable to wait and see if they would catch up to the rest of the area.  They didnt, and now those buyers are faced with the reality of sitting for years, only to now buy at those same peak prices they thought were unsustainable.

    For the rest of the area, prices are still well below peak, and will probably be several more years til they reach a new high.  Still, the most recent stats indicate area median prices are rising +8% YOY. 

    Yet another nutkicking for the early 2009 bears who confidently declared this was a "blip" and we were "nowhere near the bottom"... 

  2. La Rosa RealtyJuly 15, 2011 4:34 AM

    It's baffling and yet again it's a mental state of mind. I have to agree with you that most people do not consider the actual worth of their property during the bubble years.