In the past three weeks, there has been a raft of articles on changes in the housing market. There doesnt seem to be any question now of whether there will be a correction. The questions now are about what shape it will take. Will it be a soft landing? Will it be a hard landing? Will it happen here? Or there?
For a long time it was unfashionable, possibly even rude, to suggest hat housing prices were rising too quickly and would have to come back down to match fundamentals like population and personal income. Counter-arguments often took the tact of quoting history. "Prices in Seattle have never dropped before", therefore, they wont drop now.
What I have noticed however is that these "historians" never quote the past when prices are going up. They don't say, "prices have never risen 10%, 15%, 20% year after year, therefore they wont rise that much this year." Historical price changes are cherry-picked and only brought out to argue that prices wont drop back down. There is an emotional appeal to this strategy but it certainly isnt logical.
If historical prices didnt predict the meteoric rise, what makes them evidence that there wont be an equally historic fall?
History is a guide but it is not a rule. The only rule of history is that things change and all investments move in cycles. Investments involve math, and complex legal systems, and money but most of all they involve humans and human emotion. And humans are fickle creatures indeed.
