Tuesday, August 28, 2007

Over-valued real estate #1 - Washington DC

Over the last 30 years, house prices in Metropolitan DC increased on average by 0.9 percent a quarter, or about 3.6 percent a year. House prices followed this trend very closely until the the second quarter of 1990, when prices remained flat in nominal terms for about 5 years. Things start to pick up after 1996. Prices go above trend in 1999, and haven't stopped rising. How far would prices have to fall in order to get back to the long run trend growth of house prices? Answer - 44 percent.

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