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March 21, 2004

Coming Crash in House Prices

Look carefully at this graph of housing prices compared to average income:

Unlike Britain, which has gone through some series booms and busts in its housing market, the US had a remarkably stable relationship between house prices and family income in the last few decades. But just in the last four years, that ratio has jumped over 20%-- an extraordinary divergence from historical patterns.

Since it's clearly the product of the artificially low interest rates of today, we can expect a massive correction once interest rates rise again-- a rather serious blow to family finances and possibly the naitonal economy.

Posted by Nathan at March 21, 2004 08:49 AM