Prof. Klutz wrote:
According to your graph you think home values only rose 8% since 1890.
Prof. Klutz. You don't seem to understand the chart. I have a few corrections for you.
First, Shiller's chart shows home prices in constant inflation-adjusted dollars. (The chart description explains this). So, a house around 1895 (at 110 on the chart) and an equivalent house in 1996 (also at 110) kept up with inflation. No more, no less. That house in 1895 might have only cost $4000, and in 1996 costs $200,000, but the change in price is due to inflation, or the decline in the value of the US Dollar.
Anything above that 100-110 range can be considered overvalued (currently around 142). Anything below that range can be considered undervalued (Great Depression timeframe). Notice how all the past spikes (1980'ish and 1990'ish) always return to that 100-110 range?
Second, your 8% is wrong. The chart shows that house prices (in inflation-adjusted terms) are still 42% higher than they were in 1890. The red dotted line (which I think is where you got your 8%) is a projection of what is still to come. At least. My opinion is that we have a decent chance of going lower than the 100-110 range before 2020.
Hope this helps you.