What is the market supposed to correct to?
With so much information flying around the media about the real estate market, it is really hard for buyers and sellers to sort through it.
Recently someone asked “I hear about correction, correction, but what is it supposed to correct to?”
Robert Schiller a Yale economist studied the long term impact of real estate as an investment. What is really important about his study is that it is adjusted for inflation. So using 100 as the starting point in 1890, he adjusted home prices for inflation. 
What is clear is that the last real estate boom was grossly out of proportion to previous boom and bust cycles. This made homes so unaffordable, with many families spending over 50% on debts. This type of spending can only be sustained for a short while, before correcting will occur.
So…what does it mean for the housing market to correct? The market will continue to decline and adjust until home prices are more in line with current incomes. Are we there yet? No
(c) Copyright, 2008. Melina Tomson, All Rights Reserved. DO NOT COPY this without express written permission from the author.
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