Real Estate Prices-Still Some Distance to Go

In a speech yesterday (Tuesday, 22 April); Yale University Economist, Robert Shiller predicted the percentage decline in real estate prices will exceed that experienced during the Great Depression in the 1930s (which was a 30% decline nationally). According to Shiller, Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history. "Basically we're in uncharted territory," Shiller said. "It seems we have developed a speculative culture about housing that never existed on a national basis before." Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy. Shiller, who admits to being bearish, says that real estate cycles take years to correct.

Keep in mind all real estate is LOCAL and our experience in South Florida will have larger numbers. Our price appreciation from 1997 to 2006 was 106% (for single family homes) so if we apply Dr. Shiller's formula our correction should be in the neighborhood of 37% or more.