Bust and boom.(The Week)(real estate)

FINANCIAL markets gyrated wildly in August, in part because of concerns that the U.S. housing sector would bring the rest of the economy down. But markets were positively sedate compared with many pundits, who look at the U.S. housing sector and see Armageddon. Moneynews.com columnist John Browne expressed a typical sentiment when he said, "The busting of the wildly inflated property boom will be like that of the collapse of the dot.com boom.... We feel the real estate bust will spread into the general economy and other assets including the stock market."

Turn on a cable-news channel and listen to an economics discussion, and you get the distinct impression that housing activity in the U.S. has just gone through an unprecedented and irrational boom. The morality tale is cited as proof that markets do not work, and that new and intrusive government regulation is needed.

A look at the data, however, tells a markedly different story. The accompanying chart relates real investment in housing by U.S. households to real GDP from 1952 until this year. The chart reveals that housing investment has been volatile throughout the past half-century. By the standards of past booms and busts, the current episode looks tame. By this measure, the boom was not ...