The notion of housing as an investment first began to blossom after World War II, when the nesting urges of returning soldiers created a construction boom. Demand was stoked as their bumper crop of children grew up and bought places of their own. The inflation of the 1970s, which increased the value of hard assets, and liberal tax policies both helped make housing a good bet. So did the long decline in mortgage rates from the early 1980s.
Despite all these tailwinds, prices rose modestly for much of the period. Real home prices increased 1.1 percent a year after inflation, according to Mr. Shiller’s research.
By the late 1990s, however, the rate was 4 percent a year. Happy homeowners were taking about $100 billion a year out of their houses, which paid for a lot of good times.
“The experience we had from the late 1970s to the late 1990s was an aberration,†said Barry Ritholtz of the equity research firm Fusion IQ. “People shouldn’t be holding their breath waiting for it to happen again.â€
Why is policy being shaped to return us to the status quo ante?
Update
The ten year annualized real GDP has dropped to 1.62%, the lowest level since the early 1950s. What could possibly explain the pattern? Note, too, in the graph at the link that the peak was in 1966. The Depression/WWII generation was entering their peak earning years, and the oldest Baby Boomers had just turned 20.
Dave,
Haven’t commented in a while, but wanted to say I’ve really enjoyed the recent focus on demographics. I’m particularly interested because, as a member of the so-called post-boom “generation X,” I’m keen to try to manage as best I can the effects of the boomers going into retirement.
So far, it’s doesn’t look good for us. The boomers spent every surplus dollar they could find and took on a ton of debt (both personal and government) and I just don’t know how my generation, now close to entering our peak earning years, are going to finance the boomers in retirement, pay interest on the debt (not to mention principle), finance all the service’s we’re accustomed to, all while maintaining a middle-class lifestyle. It seems to me something’s got to give. And I say this as one of the “lucky ones” thanks to government employment and, for my wife at least, the “guarantee” of military retirement benefits. I’ve thought for quite a few years now that those future promised benefits aren’t likely to be wholly realized, but I now wonder if it might be even worse than I’d originally thought.
And then there’s the stock market. What happens when the boomers move out of mutual funds and stocks into bonds or cash? In short, are we going to see stagnation everywhere but health care?
Note to any politicians who might read this – you want to know why we are working off the last of our debt, saving like mad and not consuming? We are cynical about our financial future, specifically 15-30 years from now.
You’ve given one side of the Baby Boomer coin, Andy. Here’s the other. The prosperity of the last forty years is an artifact of the earnings, energies, and consumption habits of Baby Boomers. We’re only returning to the status quo ante.
I’m an early Baby Boomer. From my vantage point the real beneficiaries of our system have been the “greatest generation” and those just slightly younger than they. Example: between 1959 and 1967 the tuition at the university I attended tripled. I paid three times to go there what the graduates students who were teaching me had paid. That was after decades of price stability.
Housing, autos, practically everything I’ve ever bought has been the same story. Guys just a few years older than I made out like bandits.
Yes, you’re right about the “greatest” generation. My parents are from that generation (born 1925, 1928) and my siblings are boomers (born 52, 54 and 58). I came along late in 1968. My father certainly benefited, particularly being in the construction industry. He did quite well. It’s certainly interesting comparing the differences between my parents, my siblings and myself.
But I don’t really care about that – I’m concerned about the future, not who benefited most in the past. I’ve got my own family to worry about and it appears to me that me and my kids could end up in a trough. Your series of post got me thinking more about the demographics and I wonder if a much of the political causalities bandied about has more to do with demographics than politics or ideology. For example, progressives like to point to 1980 and Ronald Reagan as the beginning of everything bad that’s happening now while so-called conservatives take a different, though perhaps equally flawed, view. I wonder if that political debate attributes to policy and ideology what are really demographic causes. I don’t know enough to reach even tentative conclusions at this point.
I also share your concern about attempts to return to the status-quo-ante or some idyllic past that has nothing to do with today’s realities.