Property values NEVER go down...

Apparently some people, even many people, really believe this. Indeed, a friend of mine said as much to me a couple years ago. "House prices always goes up." He meant even more than that, believing that house prices always rise faster than inflation. Which may be true if you take only the past ten years as evidence. Go a little further back, of course, and you see that house prices flop up and down just like anything else, sometimes very rapidly, often driven by collective waves of behavior that look decidedly like the consequence of imitation. Stalwart economists may still harbor doubts, but property markets herd just like equity markets; only the time scales are different.

House prices are now set to fall, as the New York Times reports. That's not really so interesting; more interesting is the human dynamics behind the story. "Many government officials and housing-industry executives,"the article reports, "had said that a nationwide decline would never happen." On what possible grounds? If you suspect some conflicts of interest, I think you wouldn't be too far wrong.

As just one example, the article quotes Ben Bernancke:

In 2005, Ben S. Bernanke, then an adviser to President Bush and now the Fed chairman, said “strong fundamentals” were the main force behind the rise in prices. “We’ve never had a decline in housing prices on a nationwide basis,” he added.

That, pure and simple, was a form of cheerleading.

We're not so good at predicting the future when the past is given to us as statistics about "fundamentals," or sold to us in glowing terms by those with vested interests in keeping the bubble going. But one thing people are really good at is detecting patterns. We can recognize a person we know, even someone we haven't seen in a couple years, after a glimpse of the back of their head at 50 yards.

For a bit of fun, check out this video that puts you on a rollercoaster ride through housing prices, adjusted for inflation, over the past 120 years. After a century of riding, I think you'll have a good feel for the typical ups and downs of the market; and, I suspect, an accurate expectation of what might come next.