US House prices now

House prices USA

So yesterday, Janet Yellen raised interest rates in the US of A.

By 0.25%

Yes, a full quarter of one per cent.

Whoop di doo !

I guess, Ms Yellen had no appetite for pricking bubbles - or upsetting pr_cks - before her departure 🙂Click To Tweet

Does it matter?

Well it might.

You see, the last time the Americans allowed their house prices to get out of control – we had a bit of worldwide economic collapse.

Remember 2008-09?

Now here’s an interesting thing about the USA . . .

. . . house prices tend to remain flat (in real terms) over the very long term.

Don’t take my word for it – look at the chart above.

It’s from the U.S.A. Home Price index data of

(Nobel Prize winning) Professor Robert J. Shiller.

And, you can find the full set of data (back to 1890) right here  

Or, if you’d prefer a complete assessment of that and other asset markets . . . 

. . . read Shiller’s brilliant book, “Irrational Exuberance

Flat house prices?

Yes, I know it’s not something we’re used to, in the UK but . . .

. . . when you think about it – it makes perfect sense.

Why should house prices grow faster than people’s earnings over the long term?

(provided that there’s enough supply of course – and that’s where we’ve gone wrong in the UK)

The mortgage you can afford depends on your earnings.

So, all else equal, those two things should be linked.

The US house price bubble in the run up to 2007 was caused largely by excessive lending.

And that was fuelled by the mortgage backed security boom – which collapsed in the financial crisis of 2008-09.

What worries me now is that recent, ‘super’ low interest rates have reflated that bubble.

So please watch what you’re buying out there.

And for an update on UK house prices – click this image

House price crash

And have a great day.

Paul

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