Prices Drop, But Hopes Never Do

Not even a 30 percent drop in housing prices can shake the idea that prices always go up. Economists Karl Case and Robert Shiller regularly ask new home buyers about what they think will happen to housing prices over the next 10 years. Amazingly, in the 2010 round of the survey, new buyers in Boston reported that they expected housing prices to rise by about 12 percent per year over the next decade, which is almost as unrealistic as the 13-percent-per-year growth buyers expected in 2005. Wildly optimistic beliefs about house price appreciation encourage unwise purchases and help justify mistaken policies that prod Americans to bet borrowed money on housing.