You’re ignoring the two main reasons for the house price inflation of the 70s and 80s.
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2. Women entering the workforce en masse, temporarily increasing the purchasing power of those households with two incomes until prices rose enough to offset it:
http://www.census.gov/newsroom/pdf/women_workforce_slides.pdf
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CAR, I looked at the (Powerpoint presentation?) above and am stumped as to why women’s participation in the workforce began dipping in 2008. Acc to page 3, women’s workforce participation in 1967/68 was 14.8% steadily rising to 43.2% in 2008, the highest-percentage year on the graph. That is an increase of 28.4% more women in the workforce in 39 years or .728% increase per year (less than 1%). Page 4 shows women’s average FT salary was 20,600 in 1960, increasing to 36,300 (gross, before payroll taxes) in 2009. That’s a “raise” of $15,700 in 49 years and an average of just $320.41 salary increase per year, acc to this chart.
Obviously, many of those women were single (we don’t know the percentage) and very few single women qualified to buy RE by themselves, especially before 1990.
Acc to the graph below (1987 to present), San Diego housing prices really didn’t begin “skyrocketing” until about 1999. And we all KNOW what fueled the price bubble between 2003 and 2007 (hint: it wasn’t “women in the workforce.”) I can’t find any graphs of local housing prices before 1987. Maybe there are some on this site. Between 1987 until mid 2003 (the year when buying RE with “funny money” began to be prevalent), the average (nominal) price of SD housing went from $108K to $400K. That is an increase of 370% in just 16 years, or an average of over 23% per year! And 2003 was not the height of the “millennium boom.” In SD County, the fall of 2005 was the height, with average nominal prices of $600K.
All along, women’s pay increased by .00728 annually (less than one percentage point).
I would be interested in see any historical average-price chart of SD housing between 1960 and 1987 if anyone can direct me to a link). Based upon its price escalation from 1987 to 2003 (w-a-a-a-ay out of line with women’s FT wages), I don’t think it was women (spouses?) working which caused it. I think the reason for this price escalation was SD County’s coastal location and its insidious change from a military industrial complex and tourist town to having white-collar-job-creating high-tech and research companies move in after Gen Dyn, Rohr, Cubic, Raytheon and other defense contractors severely scaled back their operations or closed, laying off,. transferring and retiring many thousands of blue collar workers immediately before and during this time frame.
RE prices during this same time frame didn’t escalate this high or this fast in the “flyover states,” not even during the millennium boom. Yet, defense contractors have installations there and the same percentage of women residing there are likely in the FT workforce.
Here, the Brookings institution (in 2011) states that college-educated women (in 2009?) were beginning to experience stagnant wages.
…On a more optimistic note, women have made great strides in the labor market—both in terms of employment rates and median earnings—over the last five decades. American women are responding to market signals and pursuing higher levels of education, making them more competitive in the U.S. and global economies. Women also fared better in the Great Recession and its aftermath. From the start of the recession in 2007, the employment-to-population ratio of women (ages 25 and over) declined by only 4.7 percent—compared with a 7 percent decline among men.
That being said, we are also witnessing stagnation in the median earnings of women. While this is concerning, it is likely a broader symptom of declining opportunities for all American workers. Only after the economy has recovered will we have a better sense about whether other factors are the driving force behind this leveling off for women…
The reality is that more women every year are steadily graduating with college degrees yet their workforce participation begins to drop off after 2008, acc to this chart in the article:
[img_assist|nid=17266|title=Education and Employment of Women 1963 – 2009|desc=|link=node|align=left|width=100|height=68]
Since the RE market is now recovering, I think it will be interesting to see whether women’s workforce participation rises once the US job market fully recovers. If the RE market continues to recover, the job market recovers and more women keep getting degrees but still aren’t working FT, then their absence from the job market has nothing to do with the availability or non-availability of jobs and nothing to do with the price of RE.
[quote=CA renter]Without the increase in interest rates during that time, housing prices would probably have gone parabolic. Mind you, union participation rates were much higher then, and wages were going up for the majority of working people. That is no longer the case, and hasn’t been for at least a decade (much longer, for some professions). [/quote]
I agree with the emphasized statement. My co-worker (mentioned below) and her spouse were both represented by unions (he by a blue-collar union and she and I by a white-collar union), and, save for one or two years, we always enjoyed negotiated pay raises, however small. But, until we see some graphs of SD housing prices from 1960 to 1987, we don’t know if housing prices actually went “parabolic.” They certainly began to do so between 1998 and 2003 (before the millennium boom even started).
[quote=CA renter]There is a direct correlation between asset prices and interest rates, and it’s very pronounced in asset classes (like housing) where most purchases are made with credit. Just because prices/rates don’t move inversely at a given moment doesn’t mean that they aren’t correlated; there are other variables that can affect prices as well, masking the effects of interest rate changes.[/quote]
CAR, housing (as an “asset class”) is a necessity. Everyone has to buy or rent one if they want/need their own place. In both instances, the occupants pay all or part of their own mortgage or someone else’s (if their LL has a mtg). The fact that housing is a necessity makes it prone to your “other variables” category. However, your correlation (or lack thereof) doesn’t necessarily apply to luxury housing.
It’s not the same as speedboats and Lamborghinis being hard to sell in a recession. Even during stagflation, recessions and multiple periods of high MIRs, people still bought housing. People buy housing in the stages of their lives that they need it. If buyers have to take out a PM mortgage, they buy what they can afford within the parameters of interest rates and other terms available to them at the time of making their offers. I bought homes in what today’s young buyers would consider “adverse conditions” because we needed a house. That’s why when potential homebuyers on this forum tell me they have a “right” to be “picky” and will continue to do so if and when interest rates rise, I tell them I hope that strategy works out well for them. I can say that now. I’ve been there (multiple times) and my years of housing “need” for a very particular-type house for my family are now coming to a close.
[quote=CA renter]Once again, people with cash will NOT overpay for something when the purchasing power of all their competition has been diminished by higher rates. Not only that, but people with cash will want to preserve as much of it as possible when rates are high (and cash is dearest) so that they can earn a return on it. [/quote]
I never stated cash buyers would be willing to overpay for housing. I stated they would likely win out a property over other offers with mortgage contingencies. In fact, this is likely so even if a cash buyer offers less than a mortgage-contingent buyer. As everyone knows, with the waiver or removal of an inspection contingency, cash is a sure thing and a cash sale is a quick and dirty escrow. For this reason, sellers love cash offers. As well they should.
[quote=CA renter]And when mortgage interest rates were in the 6-8% range in the late 90s/early 2000s, prices were a lot lower in most places.[/quote]
This isn’t true in many parts of SD, my area being one of them. Only in the last 2-4 months have SFR home prices in my area recovered enough to surpass what I paid for my home in 2001 (12 years ago). My house had (presumably) gone up in “value” 166% by fall of 2005 and then overcorrected 202% downwards by fall of 2011 (due primarily to nearby closed comps on non-arms-length short sales). It was devastating to watch for all longtime homeowners who sat out the prolonged “cash-out borrowing party” and its subsequent predictable fallout. I would estimate my home (as of this month) has gone up about 22.5% in value in the last 12 years (a nonplussed 1.89% per year “profit”). This doesn’t take into account the improvements I put into it, so it’s probably close to a wash. Only time will tell in the coming months/years what its future value might be.
