The sermon at my church Sunday was partly about real estate prices. (Is this a uniquely New York thing? Or do men and women of the cloth across the land regularly invoke the housing market?) The rector, a former lawyer who actually owned New York real estate back in the 1970s, said that back in those days nobody could imagine what subsequently happened–that apartments and houses selling then for tens of thousands of dollars would, three decades later, fetch millions.
And why should they have imagined it? Real estate prices in New York had been more or less stagnant since the 1929 crash. No one in his right mind could have been expected to envision the confluence of events–the rise of Wall Street to unprecedented economic prominence, the Reagan-era tax cuts, the fall in crime, the rise in the highest incomes, the desire of rich people from around the nation and world to live part-time in the city, the change in political climate that made new Robert-Moses-style building projects impossible–that led to Manhattan’s (and Brooklyn’s) real estate boom.
I bring this up not to make a prediction about housing prices (although I find it extremely hard to believe that the next 30 years will look like the last 30), but to put in context the current wobblings of global financial markets. Investors generally work on the assumption that the future will look an awful lot like the recent past. That’s because the world is way too complex for anyone to reliably predict its future course by any other means. But every once in a while it becomes evident that the future isn’t going to be like the recent past. That’s when markets go nuts.
I’m not sure we’re there yet this week. But it has to happen sometime, because the future isn’t always like the past.