An offhand Scott Sumner remark says “here’s a bad DeLong post, where he makes the common mistake of assuming a bubble prediction was correct, that was in fact wrong.” DeLong is quoting a 2006 Paper Economy post that, in turn, cites a 2002 Wall Street Journal interview with Charles Kindleberger:
For weeks, Mr. Kindleberger has been cutting out newspaper clippings that hint at a bubble in the housing market, most notably on the West Coast. Nationwide, median home prices are up about 7% from a year ago, even though the stock market has tanked and the economy has floundered. Over the long term, economists agree, housing prices can’t continue to outpace growth in household incomes. Mr. Kindleberger says he isn’t certain there is a housing bubble yet, “but I suspect it is.”
The trick with spotting real-estate bubbles, he says, is that they don’t always spread. In 1925, for instance, real-estate prices in Florida soared and crashed, but that didn’t spread to the rest of the country. Yet he notes that something is distinctly different about the nation’s housing market today, when compared with 1925.
Sumner’s point, I take it, is that in most markets if you bought in 2002 you’re still in fine shape notwithstanding the recent crash.
But here’s a different point. When you buy a house, you’re typically buying two different things. On the one hand, you’re buying some land. On the other hand, you’re buying a physical structure that’s located on the land. (If you’re like me and own a condo, it’s more complicated, but condo ownership is rare). The house plus the land is “real estate,” although the house/land combo is often referred to on its own as “housing.” Land and houses are, however, different things. And it might both clarify people’s thinking and help retail real estate purchasers make better decisions to separate the two. Something really unusual (it might come to be regarded as an architectural masterpiece) would need to happen for the price of a house to increase over the long-term, whereas the value of a piece of land could go up or down for all kinds of reasons.