As discussed last week, the new three-tiered Case-Shiller Home Price Indexes have clearly demonstrated the degree to which the late, great era of easy mortgage lending had wildly different effects on properties within the various price segments.
Let’s now look at the three indexes again from a slightly different angle by adjusting them for inflation as measured by the Bureau of Labor Statistics’ Consumer Price Index. This will allow us to observe the degree to which home prices within all three categories have changed compared to everything else, or at least compared to the subset of "everything else" that is represented by the CPI.
read more at voiceofsandiego.org
November 24, 2007 @ 8:09 AM
It looks like the high
It looks like the high priced tier is about a year or so away from returning to the pre-2003 trendline while the others have quite a bit more work ahead of them.
November 24, 2007 @ 4:14 PM
Inflation adjusted, based on
Inflation adjusted, based on this chart, prices between 1989 and 1999 is flat. This concur with Shiller’s chart a while back that show inflation adjusted prices to be flat. So neither the high end or low end to be any where near trend line. Also, the trajectory of the decline of the low end is much steeper, so if this continues, lower tier will experience a hard crash while the higher tier might experience a soft landing. Only time will tell how deep this rabbit whole goes.
November 26, 2007 @ 8:25 PM
I recently read a book “Boom
I recently read a book “Boom and Bust” by an author that wrote another book about 20 years ago which predicted 1992 recession. In his new book, he is predicting that we will have another recession in 2010. What’s his reason? He explained about the average 18-year cycle that exists in the last 200 years of historical data. I agree with his argument in the book, in another word, people should be careful in buying houses now days, especially if you need to stretch out to do that. Anyone familiar with the book or topic are welcome to comment.
November 26, 2007 @ 10:36 PM
As some other posters
As some other posters suggested, the difference between this cycle and the last is the EZ credit. Last time (late 80s), people mostly just stretched the DTI ratios, but at least had to bring money to the deal (down payment) and qualify (decent credit, stable job history & proof of income, etc.).
IMHO, we reached the top of the natural housing cycle in 2001, and prices would have gone down from there if not for the credit bubble. The momentum from 2001 on came directly from the bottom via “no job, no credit, no money…NO PROBLEM!” loans. The people in starter homes saw hundreds of thousands of dollars — far more than they ever imagined “owning” in their lives. Like lottery winners, they took that money and spent it all on the move-up homes (and then some, as they also had access to EZ money and higher DTI ratio loans). The volume of buyers coming in from the bottom overwhelmed the market — which is why the bottom outperformed & stayed ahead of the mid-upper levels.
Now, since the starter buyers (first-timers) were coming in mostly with 0-5% down, they have very little wiggle room & any resets (or inablity to use HELOC money to make the mortgage pmts, as the “equity” isn’t there anymore) throw them over the cliff immediately.
The upper end came in with money from the sales of other homes — again, hundreds of thousands of dollars. They have a buffer that the starter market didn’t. In time, this buffer will also disappear when money stops flowing from the bottom up. There is a lag effect, but it will certainly come. These buyers were stretched just as much as the first-timers, but have some “equity” to pull out (their down payments) via refinancing. At some point, they will also hit a wall.
Just MHO. 🙂