What does this look like?
http://www.speculativebubble.com/images/homevalues1.gif
Can not attach - gif to large.
http://www.speculativebubble.com/images/homevalues1.gif
Can not attach - gif to large.
History of Home Prices Since 1890
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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.
I would guess that the average house today is more than twice the square footage of the average house in 1890.
brewer12345
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sgeeeee said: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...
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?
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
http://en.wikipedia.org/wiki/Kondratieff_Cycle
http://en.wikipedia.org/wiki/Kondratieff_Cycle
Texas Proud
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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...
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...
dex
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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.
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.
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?
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?
kcowan
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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.
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.
TromboneAl
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With indicators like "Flip this House" (A&E Channel) and "Flip that House" (TLC Channel)........
They are talking about this on the Vanguard board. Thought some would find interesting.....
http://www.diehards.org/forum/viewtopic.php?t=1912
Note: If it is not kosher to link to other boards please delete.
They are talking about this on the Vanguard board. Thought some would find interesting.....
http://www.diehards.org/forum/viewtopic.php?t=1912
Note: If it is not kosher to link to other boards please delete.
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?PPT said: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.
http://measuringworth.com/calculators/uscompare/
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.
sgeeeee said:
From the Federal Reserve Bank St Louis Federal - released April 2007:
http://www.stlouisfed.org/publications/re/2007/b/pages/slump.html
I would say in my neck of the woods housing prices appreciated another 10-12% in 2006.
I can safely tell you my salary did not go up 54.4% from 2001 to 2005.
Yeah, if you break down the period of the OPs original chart, here's what you find:al_bundy said:
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.
Andre1969
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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%.
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%.
sgeeeee said: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
FinanceDude
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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...........
We all know how "well" that worked out for a time...........
wabmester
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sgeeeee said: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
