Defaulting Our Way Back To Normal

Robert Shiller, he of the Case-Shiller Housing Index, wrote in the last Newsweek issue of 2009, "My data show that between 1890 and 1990 real home prices actually didn't increase. "

Say what?

It's true. If you look at U. S. home prices over an entire century, corrected for inflation, they don't change much, if any, until after 1990. This covers wars and depressions and -- most importantly -- conversion from an era of low home ownership and nonexistent mortgages (the average mortgage in 1890 -- if you could get one -- was a term of less than five years) to one of high home ownership and huge leverage. What came after 1990, then, can be viewed as a bubble that finally peaked in 2006, popped in 2008, and is still deflating.

Important word there, "deflating."

Home prices are down 34 percent nationally from 2006, though your city may vary. If prices are truly headed for that corrected 1890-1990 line, they have another 22 percent to go, which will take four more years and put tens of millions of homes effectively under water.