Debate: House prices will not reach their bottoms until

[(former)FormerSanDiegan]

[quote=SK in CV][quote=FormerSanDiegan][quote=anxvariety]

I am not in/on a lease, the question isn’t particular to Coastal CA – opinion is that both are mostly irrelevant. How can one argue that change in interest rates will not affect prices?[/quote]

If you look at the past 40+ years of data …increases in interest rates do not correlate with decreases in property values.[/quote]

Gotta be careful with the difference between correlation and causation. You’re right that higher interest rates haven’t correlated with lower property values. (As a practical matter, we haven’t seen interest rates do anything but go down for the last 30 years, save for some minor fluctuations.) Particularly in the last 30 years the Fed has been manipulating interest rates to counter inflation. So higher interest rates were used to stop prices from going up, or at least to stop them from going up as fast. So when price acceleration slows, interest rates drop.

Interest rates DO affect prices. The stronger correlation than interest rates v prices, is that between changes in interest rates and the rate of change in prices.[/quote]

Agreed, if there is a correlation between A and B, it may not necessarily true that B causes A or that A causes B.

However, if there is no correlation, there is no causation.

Rates have declined in the past 30 years, so let’s look before 1982.

Look at the period from the 1960’s to the early 1980’s…

Interest rates went from the 4-5 % range to the teens. Where did house prices go in that 20 year period ?

Interest rates increased dramatically in the period form the late 1960’s to 1982. Did the rate of change of home prices increase or decrease ?

[(former)FormerSanDiegan]

The notion that interest rate increases lead directly to home price declines is derived from the mis-application of a microeconomic concept (How much less house can I afford if interest rates go up) to a macroeconomic measure (Home prices).

Interest rate changes do not live in a bubble, they impact and are impacted by other factors in the economy. Higher interest rates typically accompany higher inflation. Higher inflation is the result of increases in the price of goods and services. This typically includes labor and housing.

[SK in CV]

[quote=FormerSanDiegan]
Interest rates increased dramatically in the period form the late 1960’s to 1982. Did the rate of change of home prices increase or decrease ?[/quote]

It did both. Prices were mostly flat through the mid 70’s. As were rates. There was a bit of a real estate bubble at the end of the ’70’s, though prices did not rise as much as the CPI, as mortgage interest rates had already risen from the 4 to 7% range, to over 9% by mid ’74. RE prices peaked around 1980, then fell sharply through most of the next decade.

I think you’re asking the wrong question. The right question is what would have happened to home prices if not but for the changes in interest rates.

[an]

[quote=SK in CV]It did both. Prices were mostly flat through the mid 70’s. As were rates. There was a bit of a real estate bubble at the end of the ’70’s, though prices did not rise as much as the CPI, as mortgage interest rates had already risen from the 4 to 7% range, to over 9% by mid ’74. RE prices peaked around 1980, then fell sharply through most of the next decade.

I think you’re asking the wrong question. The right question is what would have happened to home prices if not but for the changes in interest rates.[/quote]
Are you talking about CA specific or nationally? Here’s the historical data for rates: http://www.mortgagenewsdaily.com/mortgage_rates/charts.asp and here’s the historical CA median home price: http://www.realestateabc.com/graphs/calmedian.htm

I don’t see any flattening in the mid 70s. Rates went up from 1971-1974 and price went up in 1971-1974. Rates went down between 1974-1977. Price went up between 1974-1977. Rates doubled in 1977-1981 and CA median home price went up 72%. So, between 1968-1989, there weren’t a single year where the median home price in CA declined (I didn’t count 1984, since it was basically flat). In 1980, CA median home price was $99k and by 1990, the median home price $193k. So, where did you get price fell sharply between 1980-1990?

Also, between 1970-1972, rates was basically flat at ~7.5% and price went up ~16%. Then between 1972-1974, rates went from ~7.5% to 10%, that’s a 33% increase. Over that same period, price went up another 21%. Now, between 1974-1975, rates drop from 10% to ~9% and price went up 20% over just 1 year.

Like FormerSanDiegan said, I don’t see any correlation or causation between rates and price. Do you have data to back up your assertion that there is one?

[SK in CV]

[quote=AN]Are you talking about CA specific or nationally? Here’s the historical data for rates: http://www.mortgagenewsdaily.com/mortgage_rates/charts.asp and here’s the historical CA median home price: http://www.realestateabc.com/graphs/calmedian.htm

I don’t see any flattening in the mid 70s. Rates went up from 1971-1974 and price went up in 1971-1974. Rates went down between 1974-1977. Price went up between 1974-1977. Rates doubled in 1977-1981 and CA median home price went up 72%. So, between 1968-1989, there weren’t a single year where the median home price in CA declined (I didn’t count 1984, since it was basically flat). In 1980, CA median home price was $99k and by 1990, the median home price $193k. So, were did you get price fell sharply between 1980-1990?

Like FormerSanDiegan said, I don’t see any correlation or causation between rates and price. Do you have data to back up your assertion that there is one?[/quote]

Nationally. Housing prices didn’t move much at all from about 1960 to 1975. They rose sharply through the end of the decade.

Prices did go down in the early 80’s. At least they did in San Diego. Builders got killed with unsold inventory and high interest rates. I was one of them.

I mistyped or misedited, I changed that paragraph a whole bunch. Interest rates peaked in 1980 and fell through the next decade.

[an]

[quote=SK in CV]Nationally. Housing prices didn’t move much at all from about 1960 to 1975. They rose sharply through the end of the decade.

Prices did go down in the early 80’s. At least they did in San Diego. Builders got killed with unsold inventory and high interest rates. I was one of them.

I mistyped or misedited, I changed that paragraph a whole bunch. Interest rates peaked in 1980 and fell through the next decade.[/quote]Nationally, price went up 43% between 1960-1970: http://www.census.gov/hhes/www/housing/census/historic/values.html. Price nationally rose another 52% between 1970-1975: http://www.realestatedecline.com/homepricehistory.htm. So, I don’t see how you can say those gains = “didn’t move much at all”. They did rose sharply between 75-80, but only by 77%.

As for San Diego, accord to here: http://www.laalmanac.com/economy/ec37.htm, I don’t see any decline. At least not from 1982 forward. Maybe you’re talking about 1980-1982.

[(former)FormerSanDiegan]

[quote=SK in CV]

I think you’re asking the wrong question. The right question is what would have happened to home prices if not but for the changes in interest rates.[/quote]

“…what would have happened to home prices if not but for the changes in interest rates ?”

One cannot answer that question without generating assumptions that would generate even more questions.

[SK in CV]

[quote=AN]Nationally, price went up 43% between 1960-1970: http://www.census.gov/hhes/www/housing/census/historic/values.html. Price nationally rose another 52% between 1970-1975: http://www.realestatedecline.com/homepricehistory.htm. So, I don’t see how you can say those gains = “didn’t move much at all”. They did rose sharply between 75-80, but only by 77%.

As for San Diego, accord to here: http://www.laalmanac.com/economy/ec37.htm, I don’t see any decline. At least not from 1982 forward. Maybe you’re talking about 1980-1982.[/quote]

I was there. prices were flat in the early 70’s. then they rose.

Robert Schiller remembers it too.

http://calculatedriskimages.blogspot.com/2011/05/shiller-real-house-prices-ny-times.html

[an]

[quote=SK in CV]I was there. prices were flat in the early 70’s. then they rose.

Robert Schiller remembers it too.

http://calculatedriskimages.blogspot.com/2011/05/shiller-real-house-prices-ny-times.html%5B/quote%5D
First, what you’re saying is, data is wrong and your memory is better?

Secondly, that chart you’re showing from Robert Schiller is inflation adjusted. That’s a HUGE difference. I was talking about nominal prices. I could have sworn we were talking about price dropping when rate rises. Which mean nominal price dropping. Not price rising slower than CPI.

[carlsbadworker]

[quote=FormerSanDiegan]The notion that interest rate increases lead directly to home price declines is derived from the mis-application of a microeconomic concept (How much less house can I afford if interest rates go up) to a macroeconomic measure (Home prices).

Interest rate changes do not live in a bubble, they impact and are impacted by other factors in the economy. Higher interest rates typically accompany higher inflation. Higher inflation is the result of increases in the price of goods and services. This typically includes labor and housing.[/quote]

You are again using historical examples to predict future. Interest rate could rise not because of inflation, but because no one is willing to lend us money. I don’t believe Greek inflation ever topped 3% in recent years.

[an]

[quote=carlsbadworker]You are again using historical examples to predict future. Interest rate could rise not because of inflation, but because no one is willing to lend us money. I don’t believe Greek inflation ever topped 3% in recent years.[/quote]
If we get to that point, I think there are many more things to worry about then buying a house or house price dropping. Isn’t Greek unemployment really really high? What good is a low price if you have no job to pay for it?

[SK in CV]

[quote=AN]
First, what you’re saying is, data is wrong and your memory is better?

Secondly, that chart you’re showing from Robert Schiller is inflation adjusted. That’s a HUGE difference. I was talking about nominal prices. I could have sworn we were talking about price dropping when rate rises. Which mean nominal price dropping. Not price rising slower than CPI.[/quote]

At least the first link you provided also was inflation adjusted (2000 constant dollars).

Here’s what I know. I built 75 virtually identical units in 1980-1981. The early units sold pretty quickly at $71-$72K. By the end of 1981, I barely had nibbles. It took me until the end of 1983 to sell the last units for $66K.

The same houses were selling for less, in 1984 than they did in 1980.

Here’s a chart from this blog showing median prices essentially flat during that period.

Historical Home Prices, Payments, Rents, and Rates

[bearishgurl]

[quote=SK in CV]It did both. Prices were mostly flat through the mid 70’s. As were rates. There was a bit of a real estate bubble at the end of the ’70’s, though prices did not rise as much as the CPI, as mortgage interest rates had already risen from the 4 to 7% range, to over 9% by mid ’74. RE prices peaked around 1980, then fell sharply through most of the next decade….[/quote]

SK, jog your memory a little. Home prices in SD rose over 30% between January 1988 and the end of 1989. If you will recall, this was during dtn SD’s “urban renewal.” Simultaneously, many parts of its adjacent zip codes of 92103 and 92104 were severely upzoned during that era. SFR’s were being knocked down in record speed in these communities and replaced with multifamily units. The City of SD Planning Dept looked the other way on parking and setback reqs and was lax in other building code reqs as well. Hence we now have these tacky, aging, boxy multifamily disasters with 4 token substandard parking spaces in front interspersed with SFR’s on many streets and double parking off their adjacent alleys.

Beginning late 1983, RE values SOARED in SD until 1993, when defense contractors left the county en masse, including two very large ones.

[an]

[quote=SK in CV]At least the first link you provided also was inflation adjusted (2000 constant dollars).

Here’s what I know. I built 75 virtually identical units in 1980-1981. The early units sold pretty quickly at $71-$72K. By the end of 1981, I barely had nibbles. It took me until the end of 1983 to sell the last units for $66K.

The same houses were selling for less, in 1984 than they did in 1980.

Here’s a chart from this blog showing median prices essentially flat during that period.

http://piggington.com/historical_home_prices_payments_rents_and_rates%5B/quote%5D
You’re right, one of the link I provided have a inflation adjusted chart. But if you look to the right of that page, you’ll also see nominal prices for every year since 1968.

I don’t doubt that you have experienced declined on the houses you built. However, a single data point does not dispute my point. We can look at what’s going on in housing right now for a prime example. Carmel Valley is basically near peak value again while Temecula is still far from it. There was a time when Temecula was down and Carmel Valley was flat or up. We all know RE is very local. So, where were these houses that you built? That might explain the decline you see on your houses while the average was going up.

BTW, the chart you provided, the inflation adjusted show price declining but the nominal chart show price flat to increasing. So, are you talking about inflation adjusted or nominal?

[bearishgurl]

[quote=FormerSanDiegan][quote=SK in CV]

I think you’re asking the wrong question. The right question is what would have happened to home prices if not but for the changes in interest rates.[/quote]

“…what would have happened to home prices if not but for the changes in interest rates ?”

One cannot answer that question without generating assumptions that would generate even more questions.[/quote]

Since the value of all RE is based upon “local” factors, each submarket in the nation and even the sold prices of the micromarkets within those submarkets behaved differently during interest rate changes.

In markets where there is ALWAYS a “captive audience” of buyers from all over the world (such as in coastal CA cities), fluctuations in mortgage interest-rates have much less correlation to home values and home sales volume than in lesser-desirable national markets. Why is this so? Because many CA coastal buyers are willing (and able) to pay cash for a property affording them a “lifestyle” they can’t get anywhere else in the country.

It is what it is.

[Author]

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