[(former)FormerSanDiegan]

Rustico –

Do I under stand you correctly? You are saying SFR’s are overpriced by 45%-50% but will only go down 12% and that non-crash will be done in a few years?
Absolutely not.

Sorry if I wasn’t clear, or if you are unable to see the numbers on the charts. The 12% was above and beyond what one might expect when one assumes a 4% growth rate as opposed to the 6% rate I originally showed.

I’ll try again … If one assumes that the ~6% growth rate (which tracks the bottom of the data over the last 30 years), you would end up with ~22% or so decline.

If you assume a 4% rate with a base year of 1998, the result is 12% less than that implied by the 6% growth rate.

Of course the data could overshoot.

My opinion is that inflation will generally be higher over the next decade than the previous one, so I expect the end result to be closer to the 6% line than the 4% line. Just my opinion.

I’ll explain the other ways I have come to this same conclusion in another post.

[(former)FormerSanDiegan]

Rustico –

Do I under stand you correctly? You are saying SFR’s are overpriced by 45%-50% but will only go down 12% and that non-crash will be done in a few years?
Absolutely not.

Sorry if I wasn’t clear, or if you are unable to see the numbers on the charts. The 12% was above and beyond what one might expect when one assumes a 4% growth rate as opposed to the 6% rate I originally showed.

I’ll try again … If one assumes that the ~6% growth rate (which tracks the bottom of the data over the last 30 years), you would end up with ~22% or so decline.

If you assume a 4% rate with a base year of 1998, the result is 12% less than that implied by the 6% growth rate.

Of course the data could overshoot.

My opinion is that inflation will generally be higher over the next decade than the previous one, so I expect the end result to be closer to the 6% line than the 4% line. Just my opinion.

I’ll explain the other ways I have come to this same conclusion in another post.

[(former)FormerSanDiegan]

The companion article I meant to include which has the famous “follow a Hummer” quote.

http://www.signonsandiego.com/uniontrib/20060409/news_1h09homes.html

[(former)FormerSanDiegan]

The companion article I meant to include which has the famous “follow a Hummer” quote.

http://www.signonsandiego.com/uniontrib/20060409/news_1h09homes.html

[(former)FormerSanDiegan]

Who else is left on the sidelines???

Well, there’s this guy …

http://www.signonsandiego.com/uniontrib/20060409/news_1h09sandiego.html

http://www.gburns.com/

[(former)FormerSanDiegan]

Who else is left on the sidelines???

Well, there’s this guy …

http://www.signonsandiego.com/uniontrib/20060409/news_1h09sandiego.html

http://www.gburns.com/

[(former)FormerSanDiegan]

Oops !
I just thought of something. The price history from the 70’s and 80’s is completely irrelevant. Those sales were based on homes built before 1980. Whereas the sales in the last decade are a different mix of homes, some built prior to 1980 and some afterward. Therefore, the upward bias is likely caused by the change in the mix of home sales, not the actual change in price of homes. Therefore, the only way to understand prices is to interview real estate agents from the 1970’s.

(signed Poway Sailor)

[(former)FormerSanDiegan]

Oops !
I just thought of something. The price history from the 70’s and 80’s is completely irrelevant. Those sales were based on homes built before 1980. Whereas the sales in the last decade are a different mix of homes, some built prior to 1980 and some afterward. Therefore, the upward bias is likely caused by the change in the mix of home sales, not the actual change in price of homes. Therefore, the only way to understand prices is to interview real estate agents from the 1970’s.

(signed Poway Sailor)

[(former)FormerSanDiegan]

5k is 16% difference on a 30k price…

how does the back trace work with your new 4% rate?

while the lines fit and things are nicely symmetrical, i have a feeling the reality wont be so pretty…

I don’t have any data prior to 1976, so +/- 16% based on people’s recollections is all I have.

Assuming a 4% growth rate trends back to about 58 K in 1965. This seems high.

You are right, the lines are pretty, but the reality is that prices swing wildly about these points.

By the way, if I fit all the data from 1976 to 2005 I get a 6.15% growth rate. If I use 1976 to 1998 I get a 5.5% growth rate. So, 4% annual growth underestimates the experience of the last 30 years.

Of course, these graphs are for illustrative purposes only. Consult your own financial advisor. Batteries not included.

I know that this time is different and we should ignore recent history (the last 30 years). We can blow holes in this based on one or more of the following:
a) The last 30 years have been an aberration. The period between 1890 and 1945 is much more relevant, after all that period includes what we will see in the near future (but in reverse) going from a petroleum-based economy back to buggy whips and farming.
b) Baby boomers are getting old and crusty and we have to support them in their old age.
c) Because Harry Dent says that the peak of the real estate boom will be in 2011 and the stock and real estate markets will crash after that with the next null being in 2026, based on a 46-year time lag of births in the US
d) Deflation, Japan-style.
e) peak oil
f) Aliens (the extraterrestrial ones, not the terrestrial ones) will descend on us and make us slaves.
g) Global cooling caused by the next bubble: Excessive purchase of carbon credits.

[(former)FormerSanDiegan]

5k is 16% difference on a 30k price…

how does the back trace work with your new 4% rate?

while the lines fit and things are nicely symmetrical, i have a feeling the reality wont be so pretty…

I don’t have any data prior to 1976, so +/- 16% based on people’s recollections is all I have.

Assuming a 4% growth rate trends back to about 58 K in 1965. This seems high.

You are right, the lines are pretty, but the reality is that prices swing wildly about these points.

By the way, if I fit all the data from 1976 to 2005 I get a 6.15% growth rate. If I use 1976 to 1998 I get a 5.5% growth rate. So, 4% annual growth underestimates the experience of the last 30 years.

Of course, these graphs are for illustrative purposes only. Consult your own financial advisor. Batteries not included.

I know that this time is different and we should ignore recent history (the last 30 years). We can blow holes in this based on one or more of the following:
a) The last 30 years have been an aberration. The period between 1890 and 1945 is much more relevant, after all that period includes what we will see in the near future (but in reverse) going from a petroleum-based economy back to buggy whips and farming.
b) Baby boomers are getting old and crusty and we have to support them in their old age.
c) Because Harry Dent says that the peak of the real estate boom will be in 2011 and the stock and real estate markets will crash after that with the next null being in 2026, based on a 46-year time lag of births in the US
d) Deflation, Japan-style.
e) peak oil
f) Aliens (the extraterrestrial ones, not the terrestrial ones) will descend on us and make us slaves.
g) Global cooling caused by the next bubble: Excessive purchase of carbon credits.

[(former)FormerSanDiegan]

OK, for some more fun, I combined a couple suggestions. I used a 4% growth rate, which is consistent with Shiller. I also used the base year of 1998 since this is a reference point that was considered normal.

End result is 2-3 years more pain and about 12% more decline in nominal price.

[img_assist|nid=3602|title=4 percent|desc=|link=node|align=left|width=466|height=349]

Or for those who want to see things on a log-scale (constant rate of growth equals a straight line). You can use this version of the chart and a ruler to make your own assumptions on growth rates based on your view of future home price inflation.

[img_assist|nid=3604|title=Basic growth rate plot|desc=|link=node|align=left|width=466|height=349]

[(former)FormerSanDiegan]

OK, for some more fun, I combined a couple suggestions. I used a 4% growth rate, which is consistent with Shiller. I also used the base year of 1998 since this is a reference point that was considered normal.

End result is 2-3 years more pain and about 12% more decline in nominal price.

[img_assist|nid=3602|title=4 percent|desc=|link=node|align=left|width=466|height=349]

Or for those who want to see things on a log-scale (constant rate of growth equals a straight line). You can use this version of the chart and a ruler to make your own assumptions on growth rates based on your view of future home price inflation.

[img_assist|nid=3604|title=Basic growth rate plot|desc=|link=node|align=left|width=466|height=349]

[(former)FormerSanDiegan]

Rustico – Not quite infinity. Between 800K to 1.5 Mil I would guess.

What were house prices in the 1960’s ? I have some friends who have told me about the house they could have bought for 30K in Point Loma in the mid-late 1960’s. The 6% line projected backwards hits about 25K in 1965.
Who would have thought that home valued at 25K in the mid 1960’s might be worth 6x that in 1995 (at a market cycle bottom).

The funny thing is, my chart comes to essentially the same answer as Rich’s (i.e. that home prices are about 45-50% overpriced relative to where they should be).
I didn;t think this would be controversial

Maybe the plot is more believable if viewed on a log scale. In that case a constant rate of return is a straight line.

[(former)FormerSanDiegan]

Rustico – Not quite infinity. Between 800K to 1.5 Mil I would guess.

What were house prices in the 1960’s ? I have some friends who have told me about the house they could have bought for 30K in Point Loma in the mid-late 1960’s. The 6% line projected backwards hits about 25K in 1965.
Who would have thought that home valued at 25K in the mid 1960’s might be worth 6x that in 1995 (at a market cycle bottom).

The funny thing is, my chart comes to essentially the same answer as Rich’s (i.e. that home prices are about 45-50% overpriced relative to where they should be).
I didn;t think this would be controversial

Maybe the plot is more believable if viewed on a log scale. In that case a constant rate of return is a straight line.

[(former)FormerSanDiegan]

ibjames – You can find it posted by lurkor on page one of the following thread …
http://piggington.com/public_attacks_by_powayseller_against_rich

You can also find some parodies of other charts in the same thread, such as the one made by lniles…
http://piggington.com/whoa

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