History of Home Prices Since 1890

[Andre1969]

I bought my condo in December, 1994. I paid $84,000. I was 24 years old, and made about $22,000 per year at my full-time job, plus maybe $4-5K at a part time evening job.

That was probably the textbook definition of a starter home situation for a single guy who was just entering the workforce. I had graduated college in December 1993 and had only been full-time since February 1994. And that neighborhood was about the cheapest place you could own in that town.

Fast forward to December, 2004. I sold the condo for $185,000. The guy who bought it was about 30, and making about $50,000 per year in some management job. It was still the cheapest neighborhood to own in that town. However, I would hardly consider $50,000 per year as a salary for the average person just entering the workforce! Heck, I wasn't even making $50,000 per year at that time!

And today, that same condo would go for around $240-250,000. Or about 30% more than when I sold it 2 1/2 years ago. I'm sure the average buyer's salary hasn't gone up 30% in 2 1/2 years.

And here's another aspact that's changed...the mortgage terms. When I bought my place, I put 5% down, plus the closing costs. My initial mortgage balance was $79,800, on an $84,000 condo. The guy who bought it initially tried to finance 100% of the cost, plus $3000 in closing. However, his mortgage company wouldn't go for that, so he had to cough up the closing. Still ended up taking out two mortgages: one for 90% and one for 10%.

[al_bundy]

Quote:

Originally Posted by sgeeeee Yeah, if you break down the period of the OPs original chart, here's what you find: 1890 to 1994 CPI went up 1580% unskilled wages went up 7943% housing went up 10% then from 1994 to 2005 CPI went up 32% unskilled wages went up 42% housing went up 81% So if you only look at the last decade, you can find reason to worry.

Michael Milken's charitable institute did a study a few years ago and found that for the last 40-50 years the average has been 25% of your salary going to housing. around 1981 there was a big spike to 50% and since it was done a few years ago we are at another spike now. back in 2004 it was close to 40%. I think he meant after tax income.

i've looked around NYC and on a salary of over $100k only thing i can afford is a cheapo cape cod style and that's going to be around 60% of mine and my wife's take home pay including taxes and utilities. if you look at other areas at average income and prices it's a similar ratio.

Shiller is pretty smart, but i think it's stupid comparing housing in 1890 to today. for comparison i would start with post WW2 and not go back any further

[PPT]

Mortgage Delinquencies Reach All-Time High

Quote:

U.S. mortgage default rates hit an all-time high in the first quarter of 2007. Rising delinquencies will add additional pressure to a slowing housing market.

http://www.thetrumpet.com/index.php?...rticle&id=3118

[FinanceDude]

The period 2001 to now looks like the chart I have of the Dow they put on the front page of the WSJ in March of 2000................

We all know how "well" that worked out for a time...........

[wabmester]

Quote:

Originally Posted by sgeeeee Yeah, if you break down the period of the OPs original chart, here's what you find: 1890 to 1994 CPI went up 1580% unskilled wages went up 7943% housing went up 10% then from 1994 to 2005 CPI went up 32% unskilled wages went up 42% housing went up 81% So if you only look at the last decade, you can find reason to worry.

SG, did you read the part of the graph that says the data is adjusted for inflation?

Here's a blog with a few more of Shiller's graphs and a link to his paper. (The paper requires free registration to read, but it's worth it if you're having trouble interpreting the graphs. )

link

[sgeeeee]

Quote:

Originally Posted by wab SG, did you read the part of the graph that says the data is adjusted for inflation?

Yeah. That's why I included the CPI numbers -- so people could compare inflation adjusted housing with non-inflation adjusted wage data.

[wabmester]

Quote:

Originally Posted by sgeeeee Yeah. That's why I included the CPI numbers -- so people could compare inflation adjusted housing with non-inflation adjusted wage data.

Oh, I thought you were simply being disingenuous.

CPI up 1580% over 100 years would imply an average CPI of 2.8%, which seems a bit low to me.

Wages up 7943% would imply a rate of 4.5%, which seems about right.

Housing prices have risen about 1% over CPI for the last 50 years or so (pre-2000), and that should be somewhere between CPI and wage inflation, which is as it should be.

In the last decade, that hasn't held true, of course.

[sgeeeee]

Quote:

Originally Posted by wab Oh, I thought you were simply being disingenuous.

I realize you haven't had a great deal of formal mathematical training, wab, but why do you think I would have included CPI data if the wage and house data were both normalized to the same inflation data?

Are you being disingenuous?

[wabmester]

Quote:

Originally Posted by sgeeeee I realize you haven't had a great deal of formal mathematical training, wab, but why do you think I would have included CPI data if the wage and house data were both normalized to the same inflation data?

I'm trying to parse that sentence. Are you saying that the wage inflation figure you quoted is *in addition to* CPI? That seems very unlikely.