Shiller has charted American home prices from 1890 to 1990 and found that when adjusted for inflation, prices didn’t actually go up at all over the entire 100 years. Add in the cost of maintaining a home and the fact that buyers tend to prefer new properties to older homes and Shiller says in the long run housing makes a pretty lousy investment.
But while the last 100 years have seen house prices stay virtually flat in real terms, Shiller predicts the next century will probably be characterized by more frequent real estate bubbles. People in cities that have seen major real estate booms tend to be more likely to believe that house prices will eventually go up again, he says. So rather than make buyers more cautious, the global housing crash might be driving even more unrealistic optimism. “There’s been a rise in a speculative culture all over the world,” Shiller says. “I think the volatility of real estate may be going up in a long secular path. I don’t believe home prices will go up, but they might be more vulnerable to bubbles.”
If so, homebuyers who think global real estate markets have learned from past mistakes will be in for a rude awakening.
I completely agree with Mr. Shiller. For as long as people continue to view real estate as an investment, bubbles will continue to happen at more frequent rate. Greed, low interest rates and accumulated debt would be the fuel for those bubbles. Wealthy investors seeking a safe haven will play a secondary role at best.