In yesterday's post, commenters Foxfier and Hal (GT) requested a graph of housing prices vs. inflation. Couldn't find that, but jparsons.net provides pictures of the housing bubble in inflation adjusted terms.
Note that there has been a long term trend where housing prices have outstripped general inflation. Why this is so, I don't know. But we can see from the graph above that this bubble still has not deflated to the long term trend. If you think that the long term trend is also an aberration caused by years of government tax and other policies that have subsidized housing, there may still be a further drop.
One more graph that I believe to be more relevant, housing prices vs. rental equivalent. The reason it is more relevant is that the rental market is a substitute good to the good of home ownership. It is irrational to believe that they will diverge in the long term.
Note the divergence really gets rolling at the end of the Clinton era when we have Fannie Mae pushing loans to everyone, regardless of qualification.
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