Diary of a Financier

Using the Tech Bubble as a Guide: The Housing/NASDAQ Analogue

In Economics on Thu 21 Apr 2011 at 08:28
  • Like all bubbles, the NASDAQ/Home Price comparison bears resemblance.
  • Like all bubble bursts, the NASDAQ’s subsequent growth has been tepid–as will housing’s.
Since I’m hot on the trail of “what’s next,” I thought it important to record
my thoughts on the future of home prices in America.
Here’s a chart of the S&P/Case-Shiller Home Price Index:

S&P Case Shiller Home Price Index

 Compare that to a chart of the NASDAQ Composite  (COMP.Q) through the Tech Crash:

NASDAQ Composite (1991-2004)

Eerily similar, right!?

Allow me to extend that NASDAQ chart through present day:

NASDAQ Composite (1991-present)

So, I’m hoping that the retirement of QE2 in June will be succeeded by some type of housing support from the Treasury.  I’m just pleading for support to prevent a deflationary relapse–not for stimulus to inflate another bubble–and I think policymakers will arrive at the same conclusion I have, based on my analysis.

In light of fundamental factors and the NASDAQ/Home Prices analogue above, I expect housing to moderate in the coming years–as opposed to the resurgence that so many await.  The charts are not exactly similar, because analogues never are.  I know the human mind tricks itself into seeing commonality or ascribing meaning where none exists.  But my deduction from the overlay is apropos.  In the housing conversation it seems like everyone discusses when home prices will return to their prior peak, not if.  I think the if is just as relevant, because I can’t think of a bubble burst that had been succeeded by anything but [relatively] tepid growth–as exhibited by the NASDAQ.

–Romeo

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