“A History of Home Values” graph by Robert J. Schiller

[svferris]

Sorry if this has been posted before, but this chart recently appeared in the New York Times. Thought it was a great illustration of the current bubble, for those that haven’t seen it.

A History of Home Values

[Bugs]

That graph shows it on a national basis, ya? If so, using the same 1890 baseline for this region would probably look even more extreme.

[Anonymous]

That’s a great chart Ferris. Thanks for the post!

[an]

This chart just showed how it’s impossible to time the market. Sure the last two cycle happened pretty smoothly, but look further back than that and you’ll see that there’s really no bottom. Like between the 50s and 70s. If you wait for a true bottom, you might have wasted 20 years.
Also, that chart showed as recently as mid 90s, there’s a dead cat bounce. There are also many dead cat bounce between 50s and 70s.

[(former)FormerSanDiegan]

This chart shows a ~15% real increase in house prices from beginning of depression to WW II.

Who would have thought that holding RE during the depression was “good” ? Not me.

[pencilneck]

This chart also shows that the current real estate boom as starting in 1997. This seems to contradict the theory that the current housing boom was created by investors fleeing the stock market.

It does, however, add strength to the argument that the booms (bubbles) in the stock market and the housing markets were created by the same loosening of the credit markets. The housing market had a more sluggish response to the stimulus.

Great chart. Thanks for posting svferris!

[powayseller]

an- your dead cat bounce is simply a merging of opposing trends in various areas of the country. Real estate does not move up, down, like that. It picks up steam slowly, accelerates, slows down, turns. Its direction goes for many years. It is highly illiquid, slow moving. It doesn’t trade like stocks. I completely disagree with you about a dead cat bounce. Since this is a nationnal chart, you would obviously not use it to time the market.

[an]

It’s quite easy to pick out cycle between 80s and now, but tell me how you would pick out a bottom between 50s and 70s? there are a year or 2 of rise, then it resume its down trend.

[powayseller]

asianautica – I wouldn’t pick a bottom off a national chart. I would use months inventory for my city and zip code.

pencilneck – John Talbott wrote that the housing boom started in 1997, when the tax laws changed to allow tax free capital gain from housing sale.

[greekfire]

Thanks for the graph. The question now is where will it go from here. I personally think we'll see something like that in #3. What do you all think?

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[Anonymous]

That Graph Doesn’t Show Squat

Where’s his data? Who says you can compare a “typical” 1890’s house with a “typical” 2000’s tract home? And at every point in between? And I love how he “excludes” new construction completely obfuscating over when that new housing becomes absorbed into his figures. Hello? New housing MUST enter the system. Otherwise his index is all quaint remodelled B&Bs from the turn of the century.

Nationalizing data like this is guaranteed to hide local property busts a la Houston 1983-86. Laughable to say the least. And this guy is supposed to be some sort of famous economist?

Please.

It’s no WONDER the real estate industry is in the state it’s in.

[an]

Since I don’t have data between 50s and 70s, I can confirm my suspicion, but I think that between 68 and 73, the month of inventory probably went down and people might think things are finally picking back up, only to have it crash again around 1973. There’s no way for us to know until we past it. But anyways, you seem to have your mind set that you can do what no one else can claim they could do before, so good luck to you.

greekfire, I vote for #4. Whether we’ll see it in dollar amount or rapid inflation or combination of both, no one knows. But I’m pretty sure we have to revert back to historical mean. The higher you over shoot, the higher the chances of you under shoot on the way back down.

[no_such_reality]

It shows housing is 100% overvalued. Nationally. Local market will be above or below accordingly.

Viewed in context of history, the graph shows a lot. What it clearly shows is that the current median home price nationally should be ~$110K versus the $200K it is. It also shows that anything above or below $110K is cyclic noise.

Prior to modern credit and central banking policy, the equivalent was $100K, now the reset point is $110K corresponds to the suburbanization shift that occured post WWII.

You local market will show the same, in fact, Rich has already posted it for SD, OC and LA. It’s the median price to income chart. Which is 8.5-9.0X median income.

[Anonymous]

Colombo,

If you were to chart median home prices, you would see a similar (if not quite as exaggerated) spike upwards after 1997. The whole point of Shiller creating this historical same-house sales index was basically two-fold:

1. There is very little reliable house sales data prior to the 1970s, when Freddie Mac/Fannie Mae & NAR began to track this information nationally. This index was a painstaking –and praisworthy– effort to construct an index that went well before that. Is it perfect? No, but compared to the next best competing index (nothing), it’s not too shabby.

2. Median sale price data (as reported by NAR, DQ, etc.) does not always accurately reflect the real cost of housing, due to the varying mix that is sold each year. The median price is always set at the margins –in other words, a relatively small number of properties as a % of total housing stock gets sold each year (approx. 6% according to some estimates). If an unusually high number of these homes are expensive, the median goes up, even if same-house prices are not going up. The same thing works in reverse –when mostly lower-end homes are selling, the median can be artificially skewed downward.

Aside from the statistical quirks that can skew median prices, sales data is also subject to occasional fraud and manipulation by the industry shills who compile and report it. For example, the cost of cash kick-backs and other “incentives” (vacations, cars, plasma TVs, etc.) is rarely factored into the sales price when same-house price are actually falling. Check the news links here and elsewhere –we are seeing this happening right now in bubbly regions.

Of course, since you are so brilliant and everything comes so easily to a genius of your obvious stature, I’m sure you can enlighten us uninformed buffoons. Please bless us with your sublime wisdom and show us what perfect index YOU have created, ‘O Great and Powerful Columbo.

[no_such_reality]

Hey, came across this little ditty on the US Census site ranking Owner Occupied monthly expenditures on home owning costs in 2004 spending 30% of more on housing… too much

looks like in 2004, SD was at 44%. Santa Ana was worse, which may have improved with influx of incomes.

I’d be curious to see 2005 and 2006, but we probably have to wait two years.

Trying to see why nationally, housing fluctuates between 2.5 and 3.5 median income while California typical is well above at approximately 5X household income in places like SD, OC.

[Author]

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