The macro picture- Is housing correctly priced

[bubba99]

In January 2002, 1.15 euros was worth 1 dollar. Today the .73 euros equals 1 dollar – a drop of 36% in the value of the dollar. By all logic, the US inflation rate should have been closely related to this 9%/year devaluation in the dollar – it was not.

Inflation here in the US has only been 2.5 – 3%/year, or 12 percent for the period 2002- current. So what happened to the other 24%? It looks like our foreign suppliers have been eating the difference for our imports of cars, electronics, refrigerators, and even clothing. Could it be that housing is the only consumer item that reflects the actual devaluation of the dollar?

Could it be true that to get back to 2002 dollars we need to divide the curent price by (1.15/.73)=157%? A 57% increase in the cost of housing just due to the dollar? Could it be that housing is one of the few items actually priced correctly when the devaluation of the dollar is conisdered?

Other consumer goods are leveraged downword in price because of un-usually low priced imports supported by foreign governments social agendas. But the housing market is not influenced directly by imports. A house is made and sold on US Soil only – thus not influenced by the same downword pressure on price by imports.

[Ash Housewares]

“So what happened to the other 24%”

You’re seeing it in higher energy, food, healthcare, etc- all the interesting things that get removed in calculating the “official” inflation rate. Basically everything that comes from a country other than China (which pegs the yuan to the dollar) has gone up.

[kev374]

higher energy, food, healthcare leaves less to spend on housing so I can’t see housing prices increasing based on that..they should infact decrease.

The reason housing prices went up wildly was due to speculation and extremely loose lending. If you give financing to someone with no job, no credit and to top it all not require any downpayment they will not only take the loan but will outbid everyone else. What have they got to lose? Nothing! Money has no value to them because it’s credit and they didn’t earn it.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

This is a re-post but I think it fits this thread as well.

I think the bottom line is FORECLOSURES !!,

Hell these things (houses) may even be worth what they were sold for, But just too many of them were sold to people who had no business even driving through that neighborhood (at that price). So there will be a fair amount of them on the market that must be sold I believe.

Just My opinion.

[blahblahblah]

The bottom line is that someone has to pay to live in those houses. Our dollars are being rapidly devalued, that’s true, but unless we’re invaded by hordes of Germans and Swedes to purchase all of these $750K homes, the incomes required to make those payments are going to have to come from Americans. And American wages have been stagnant since 2001 or so. House prices went up because of easy lending and speculation, end of story. Home prices may stay high in nominal dollars due to inflation once wages catch up, but they will decline in real dollars. The real question is — do you think wages are going to catch up or not? And if so, how long do you think it will take?

[bubble_contagion]

One key piece of information missing is how much inflation and wages increased in Europe since 2002. If prices and wages have remained the same since 2002, the actual purchasing power of Europeans vs. Americans may not be that different now. If wages and inflation have increased the same as in the U.S. we are screwed.

[HereWeGo]

Can rising incomes offset the effect of housing tumbles on the greater economy? Maybe, maybe not.

Can rising incomes buoy housing markets in the rabidly frothy coastal areas? Doubtful.

[Cow_tipping]

Can rising incomes offset
Submitted by HereWeGo on April 30, 2007 – 8:15pm.
Can rising incomes offset the effect of housing tumbles on the greater economy? Maybe, maybe not.

Can rising incomes buoy housing markets in the rabidly frothy coastal areas? Doubtful.

Rising incomes = rising interest rates because they both are a measure of inflation. That will cause a drop in prices as more people are “priced out” by interest rates, they’d have to be priced back in by lower house prices.
Rents will rise with income.
Cool.
Cow_tipping.

[SHILOH]

“Could it be that housing is one of the few items actually priced correctly when the devaluation of the dollar is conisdered?”

How can housing prices be “priced correctly” when the reason for the outrageous inflation of housing in places like SD was fueled by a psychology of “Irrational Exuberance” and shoddy lending practices? Looking below North County, for example, it makes no difference if someone wants to claim that a bunch 50 year old home in South Bay or National City or Lemon Grove or Logan or elsewhere are “priced correctly” at $500K — when they are 10 times the household median income and unaffordable. Anyway it’s spinned, homes are not priced correctly if they are totally unrealistic in pricing to their potential buyer.

Despite the weather in San Diego –quality of life has less to do with sunny weather and more to do with whether you can do more with your time and $$ than service a mortgage that is 10X your income.

If hospitality is the largest growth industry – it does not pay enough.

[what_a_disasta]

I have been wondering the same thing myself. Your dollar is worth a lot less, so it takes a lot more of them to buy the same commodity. Look at house prices valued in a commodity (oil,gold,copper etc) rather than USD and the prices are going to appear flat or even falling over the bubble period. So… maybe houses wont fall that far after all.

[Ash Housewares]

“Look at house prices valued in a commodity (oil,gold,copper etc) rather than USD and the prices are going to appear flat or even falling over the bubble period”

That doesn’t matter because the vast majority of houses are purchased with US dollars coming from US jobs. Has your pay been increasing at the rate the dollar falls? Doubt it. But folks like you and I represent the typical player in the housing market, so the dollar remains the correct metric to use when evaluating the increase in home prices.

[RDeNiro]

I dont’ think you can see houses as a commodity. Maybe the materials to build it but not the land. I think inflation plays a role in the increase in property values but we also need to consider the excessive money supply during this period.

[cr]

I think you can pretty much blame all of it on the interst rate cuts Greenspan used to bail out the stock market crash in 2001.

Low interest rates reduced foreign investment and weakened the dollar internationally. Since the stock market tanked, speculators moved to housing, which loosened lending standards, and drove house prices artifically higher. Many here argue Greenspan bailed out one bubble with another.

And his free money policy created more money and further weakened the dollar’s purchasing power, here and abroad. Consumer goods stayed affordable because there is virtually no shortage of them, but houses rose on speculation.

Oil in 2002 was about $30/barrel. The war and international demand give us the $70/barrel price today, but the war didn’t increase home prices. Consumers weren’t investing in tanks of gas, they bought homes because money was easy to get, and (at the time) you couldn’t lose. I’d say the over 100% increase in oil is roughly the same we have seen in housing in the last 5 years. But filling up at $4/gallon, albeit expenisve, is different than buying a house you can’t afford.

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