Les Jones

[...] U.S. House Prices, 1975-2008. “We’re now in an era in which home prices are depreciating. Based on the graph above prices [...]

Good stuff. I’d like to see it go back further, at least to WWII if not pre-Depression.

Looks to me like the time to buy a house is when the inflation-adjusted average price drops below $150K or lower.

There will be another drop starting in about 2011 when the boomers start retiring in droves. The generation entering the housing market is smaller than the generation that will be leaving it. About 1/3 of the workforce will be retiring, too. So that generation will find good pay and affordable housing.

[...] a graph of US housing prices since 1975, both the stated prices and the same prices adjusted for [...]

I don’t see this graph supporting what you said.

If we take the period when house prices went from $50,000 to $100,000 it would be from mid-1978 to mid-1989, 11 years to double. If this trend had continued we would expect them to rise to $200k by mid-2000, but they were only at about $135k. Continue the trend 5-1/2 years to 2006 and the price should be at $300,000 which it has not yet reached. It all depends on what you consider the average appreciation should be.

A graph from 1900 to 2000 to see average appreciation would be more informative.

[...] tip: Les Jones via [...]

“I don’t see this graph supporting what you said.”

Mark, you’re looking at the nominal house prices (the blue line). Instead look at the inflation-adjusted house prices shown by the red line.

“If we take the period when house prices went from $50,000 to $100,000 it would be from mid-1978 to mid-1989, 11 years to double.”

They only doubled in nominal, inflated dollars. Once you adjust for inlation the price increase during that time was only around 15%, then dropped back down over the next few years. Prices remained relatively stable until 1998, when inflation-adjusted prices suddenly went far above historical norms - a bubble.

Gary, I have a chart showing it going further back, plus some other charts on the latest data at

http://riskandreturn.net/index.php/2008/11/26/housing-bubble-charts/

and

http://riskandreturn.net/index.php/2008/11/25/light-at-the-end-of-the-housing-tunnel-fail/

Run this graph against net equity after leverage, if you want to see the real story. It’s remarkable that most Americans put the bulk of their savings into a geographically isolated, sector nondiversified, speculative, highly leveraged investment like housihng.

I wonder if in these analysis, the size and amenities contained in newer houses should be compared to that older homes.

From my point of view, I love to see these prices drop. About 5 years ago I looked into buying a house and I just couldn’t believe how much people were paying for them (Denver), it was more than I thought was sane at the time. I’m glad I didn’t buy into a bubble, but I’m fuming that the government wants to stop the fall and support the bubble. I wish they’d keep their dirty hands out of it all.

Disagree - if this chart shows median price…:
downdraft in prices skewed by more sales (foreclosures and other forced sales) at low end than “normal”.
What is price trend ex-the lowest (say) 20% or by some measure that discounts these extra low-end sales?
After all, most solid citizens are not involved in the bubble caused mainly by Gov’t (i.e., Dems) forcing sales to those who couldn’t afford the homes to begin with.
Of course, the recession this is causing may hit more folks as jobs are lost, but that’s not in this data.

I’d like to see house prices plotted against income; I suspect the historical ratio would be nearly constant and that ‘bubble’ prices will continue to fall until the same ratio obtains again.

[...] tip: Les Jones via [...]

Quinn,

The index does take into account the changes in the size and amenities of newer houses.

Person from porlock,

I have updated my post to include a chart plotted against nominal incomes, plus some other ways to compare.

http://riskandreturn.net/index.php/2008/11/26/housing-bubble-charts/

In 1998 Congress changed the tax treatment for capital gains from the sale of residential real estate, including the provision that an individual who owned a house for five years and lived in for at least two of those five years could collect the first $250,000 ($500,000 for a married couple) tax-free. The change in the capital gains tax treatment has to be one factor to consider in the housing bubble.

I am a “chirpy real estate agent.” Those in my office don’t predict the future and rarely if ever say “always” about anything. We do guide people based on the current market and we will describe past trends. Please don’t take a shot at us. Most of us are trying to do the most professional job we can and have a lot of inowledge useful to the consumer.

Alan,

I agree, and know many fine Real Estate agents. However, the National Association of Realtors economics team has been obtuse, if not fraudulent.

Thanks, Lance. The data supports Les - the inflation-adjusted price was remarkably constant from 1945-2000. It’s interesting to note the trough from about 1915 to 1945, beginning long before the Depression. I suspect the inflation adjustments are increasingly speculative as we go back further in time though the general trends are probably correct.

I think this analysis suffers from data that is spatially inhomogeneous. Prices in this boom have mostly risen in the Florida, Texas, Nevada, and California. The rest of the country had seen business as usual, until the burst affected everyone.

[...] tip: Les Jones via [...]

Another key factor is missing from these graphs which is the price of a mortgage. If you factor in mortgage rates a different pcture emerges. Lower mortgage rates allow for more people to enter the market creating higher demand and thus higher prices. We have been and still are in a period of extremely low mortgage rates as a result of many factors including overall low inflation. If inflation kicks in (not likely in the near future) then mortgage rates will increase further blunting demand and, consequently, prices.

If the graphs show the same data, why do they differ?

E.g., the top graph shows $100k nominal in 1990, but the bottom shows maybe $87k.

TO: Doc J

you said, “if the graphs show the same data, why do they differ?”….

The graphs can use the same data but are shown over different periods. Nominal on the lower graphs is set over 118 years while the upper graph shows only the last 33 or so. …

Its all in how you look at it. Seems that if you draw peak-to-peak lines and project them then the average price should be in the range from $155K to $200K before things get back to normal….