Two recent ostensible bubbles were the Nasdaq and US house prices. Prof. Shiller's nominal house price data was scaled to match the high of Nasdaq stock market, and shifted in time so the two peaks concurred (HPIQ2 2006 = NASQ1 2000).

Consistent with liquidity differences the Nasdaq bubble formed and burst much faster than housing. And neglecting effects of mortgage leverage, the housing bubble gain/loss was much less than Nasdaq.

Though the Nasdaq bubble was much more dramatic, ostensibly housing effects many more people. This, along with the fact that stocks are less in demand than places to live and market distortions due to foreclosures, suggests different bubble dynamics. Nasdaq began rallying about 2 years after its peak wheras housing continues to decline now some 5 years post-high.

Art Cooper writes:

Isn't "the effect of mortgage leverage" an enormous thing to neglect? Obviously, leverage is employed far more in housing than in the purchase of NASDAQ stocks.

Kim Zussman adds:

One could make the case that homeowners key less on loan-to-value (or value of equity) in a home than what the house next door just sold for.





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