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Comparing Real Estate with Equity Market Capitalization

Posted By Barry Ritholtz On May 21, 2005 @ 9:44 am In Economy,Markets,Real Estate | Comments Disabled

We previously noted the issue of any asset class which approaches 140% of GDP [1]

Mike Panzner [2] does the same comparison, but from a different angle:

"Like the baton handoff from one relay runner to the next, 1999 appears to have been the transition year from the old (bubble) to the new (bubble).

click for larger graphic

2assets [3]

Panzner [2] notes:  "While not strictly a like-for-like comparison, the attached graph of
U.S. equity  market capitalization vs. the market value of the real
estate holdings of households, nonprofit organizations, and
nonfinancial businesses (from the Federal Reserves Flow of Funds Z.1
report) provides an interesting overview of the relationship between
the two asset classes from 1990 through 2004."

As I’ve mentioned in the past, I do not a member of the "Real Estate bubble [4]" club. Rather, its an asset class [5] which has run up due to ultra-low interest rates, demographic population trends, and decreasing land availability. That doesn’t mean it isnt frothy and can’t or won’t pull back eventually.

Will it implode, ala 1999 Nasdaq bubble, plummetting 80% in value? Its doubtful . . . it could happen, but would require a full blown depression, and not a mere recession, to occur.


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/05/comparing-real-estate-with-equity-market-capitalization/

URLs in this post:

[1] 140% of GDP: http://bigpicture.typepad.com/comments/2005/03/be_wary_of_anyt.html

[2] Mike Panzner: http://www.amazon.com/exec/obidos/ASIN/032124785X/thebigpictu09-20

[3] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/2assets.jpg

[4] Real Estate bubble: http://bigpicture.typepad.com/comments/2005/04/the_bubble_in_b_1.html

[5] asset class: http://bigpicture.typepad.com/comments/2005/04/a_bull_market_i.html

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