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i like charts that factor in population growth (immigration) + low interest rates (money from china) + an increase in household income over time... all of these should be expected to push adjusted prices higher
It's hard to tell withoutmore detail, but I wonder if things like house size and features are taken into account.
I would guess that the average house today is more than twice the square footage of the average house in 1890.
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Join Date: Mar 2003
Posts: 18,085
Re: History of Home Prices Since 1890
Quote:
Originally Posted by sgeeeee
It's hard to tell withoutmore detail, but I wonder if things like house size and features are taken into account.
I would guess that the average house today is more than twice the square footage of the average house in 1890.
And commonly includes indoor plumbing, modern cllimate control, insulation, more and better windows, etc. nowadays.
Here come the hedonic adjustment haters...
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i am very familiar with two areas, southern california and boston. so cal is about 20% overvalued and boston is about 10% overvalued. i don't think we'll ever see close to 100 on that chart unless unemployment moves above 10% and people can't pay rent. at somewhere around 140-150 on that chart, properties become cash flow positive as rentals with no money down (in boston). in so cal, thanks to prop 13, the vast majority of people will just pull their properties off the market and let them sit. you can't tax them out. i think we're in for some more declines + a few years of inflation that will make the market healthier, but not the crash that everyone wants to see.
and as others pointed out, houses are a lot nicer now... people seem happy to pay 50% of their combined income for them...
where else would people invest their money anyway, if not in real estate... i thought the stock market was capped out at an all time high?
if you believe in the K wave theory which does sound very intersting, 1890 is a bad year to compare to current values. if you choose a different year when times were better current times may not be so bubblish
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Join Date: May 2005
Posts: 16,185
Re: History of Home Prices Since 1890
Looks to me like the CO2 chart that people trot out for global warming....
I would say that there is a higher demand for that house in Boston today than in 1890... or for that matter any other year on the chart.. it does say they are tracking housing that has been around for the whole time...
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Join Date: Oct 2003
Posts: 5,105
Re: History of Home Prices Since 1890
I'm not sure about the value of the chart considering the changes that some have mentioned but one of the most important is the change in mortgage practices
Prior to the Great Deprecision mortgages were no longer than 5 years. It was changed in the 1930 to 30 years in an attempt to get the economy moving.
Population Growth and pent up demand is another factor - in the 1960s the US poplulation was apx 200 million now 300 million BUT more important is that the number oh home buyers increased at a greater proportion. Think baby boomers.
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With the surge in Baby Boomers also comes a surge in that percentage of buyers who buy more house than they can really afford. And lots of mortgage companies happy to accommodate them with ARMS and "interest-only" loans that keep their payments down while they get to live in a house with lots of bells and whistles and square footage.
There's probably a bubble. Probably not as big a bubble as that chart suggests, since all the other factors mentioned here also play a part. But a bubble. So what do we do to protect our assets?
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Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,608
Re: History of Home Prices Since 1890
The surge is the speculative bubble that was fuelled by
1) Extraordinarily low interest rates
2) Liberal lending practices
3) Stock market meltdown in dotcom, tech and telecom
4) Speculation by average investors
5) Many people believing the ride will never end.
Or maybe we have ventured into some kind of new economy.
I just do not see how housing prices can outpace wage growth so greatly.
I would hate to be a 18 year old looking for a place to live now.
Am I missing something? I don't see why you assume that house prices are outstripping wage growth. Does anyone have more description of what Shiller is actually plotting here?
It looks to me like wage growth has outstripped inflation by more than a factor of 5 over this period. Yet if I understand Shiller's plot, housing cost has only doubled compared to inflation.
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