My national inflation calculator shows 19% inflation from 2002-2008. So if I get 50% off today is that 30% off adjusted for inflation? IE, my dollar was worth 19% more in 2002 when I could have bought a house for say $250k, ($500k bubble price in 2006) than it is today when I pay $250k (50% off bubble price).
If I could go back in time and take $300k with me, my $300k would be worth 19% more in that time; I’m still paying $250k for the house plus… I get the benefit of the left over $50k buying me 19% more goods and services. So I am wealthier in 2002. Thus, 69% off is needed today just to get back to 2002 wealth.
When wages fail to keep pace with inflation (which they have for 20 plus years) then even inflation dictates housing should get cheaper.
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Your math is off here.
You’re assuming zero wage growth to get to those numbers, when in fact, on a national level, it has been roughly zero effective growth (adjusted for inflation). Nationally, wages HAVE risen, just not enough to outpace inflation (over the bubble years, you are correct, they did not keep pace with inflation…but they didn’t have zero growth either. I believe the most recent numbers have about a 5% loss of purchasing power since 2000).
That means that a 50% drop in price from peak prices is in fact a larger magnitude drop, because you need to take into account wage growth (which over the long term is roughly equivalent to housing gains). Again though, some submarkets are different. In San Diego, we DID outpace inflation with wages – by a reasonably good margin. Census figures showed a 30% gain between 2000 and 2008.
Assuming that wage increase value, a house bought for 250K in 2000 would be equivalent to one bought for 325K today. So a house that was at 650K at peak, and sold for 325K today would be at the inflation adjusted equivalent of 2000 prices, even if the NOMINAL price was at late 2002ish prices.
