"Like all manias, the housing bubble has been fed by myths, not a few of them manufactured by the sharpies peddling houses or the financing to purchase them. One of these myths that has gained remarkable currency is there has never been a year in which home prices have gone down since the end of the Depression (during which, it's rarely mentioned, they fell by as much as 30%). Frankly, we were pleased as punch to come across the accompanying chart in the latest edition of the Liscio Report, put out by that estimable duo, Philippa Dunne and Doug Henwood, that lays to rest this egregious canard.
What it shows quite clearly is that, using a house-price index compiled by the Office of Federal Housing Enterprise Oversight (OFHEO) and adjusted for inflation, home prices do go down. The beauty of this index, as Philippa and Doug note, is that "it's a repeat-sales index, meaning that it tracks successive sales of the same houses." Because OFHEO's index begins only in 1975, it doesn't capture all the years house prices have declined and, most particularly, the "savage'' drop suffered in '73-'74.
Next time some wild-eyed friend who is thinking about buying another home on spec (he already owns three) assures you the price of a house never declines, smile politely and start talking about the weather or whether the Washington Nationals are for real. But be very careful: He's got the kind of fever that's highly contagious.
Philippa and Doug point out that the first quarter of this year saw the market value of residential real-estate shoot up for a record 40th quarter in a row (the previous record was 34 consecutive quarters, set in 1969). They also point out that the gap between house prices and household income is now at an all-time high. But not to worry, there's no bubble."