Wednesday, July 28, 2010

Back to the mean

Today, on the Big Picture blog Barry Ritholz posted the graphic shown below (click to enlarge). I'm a big fan of Robert Shiller and when he speaks I listen. The projection isn't his, however, it is derived from the perceived trend of the chart. Talk about reversion to the mean! This prediction would necessitate another drop in housing prices of 25%! I'm glad I am not in the housing market at all (renting) let alone one of those unlucky millions of Americans who were unwitting buyers in 2005/06. Those people are so deep underwater they can't help from drowning when it comes to their loan-to-value ratio.