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YesYNot   2009 Jun 13, 2:30am   ↑ like (1)   ↑ dislike (1)     quote        

On the other hand, the population of Flint shrank from 194,000 to 124,000 from 1970 to 2000. That leaves every 3rd house or so vacant. How are they supposed to pay for street mainenance, sewage, garbage pickup, etc.? They don't exactly have good Jobs either.

YesYNot   2009 Jun 13, 4:22am   ↑ like (0)   ↑ dislike (0)     quote        

I don't know who here actually read the article, but here are a couple of points.
*The plan was the idea of Mr Kildee, treasurer of the county where Flint is. As treasurer, he no doubt came up with it as a way to cut their costs. It was not a plan by Obama to reduce housing supply and boost home prices.
*As for letting homeless live there, there simply are not enough people to fill those houses, homeless or not (at least in the Flint situation).

The federal government is looking to expand it to 50 cities, mostly in the rust belt.
It seems to me like a plan that could be implemented well in some cases.
Like you guys, I'm not in favor of razing good homes or razing any homes in an effort to cut down on supply. I could see how this idea could be adopted/misused for that purpose.

The article was pretty well lacking in details, but it doesn't seem like something to roundly condemn.

YesYNot   2009 Jun 24, 2:24am   ↑ like (0)   ↑ dislike (0)     quote        

So don't pay it. Find a comparable place and check or negotiate the rent. Show that to your current owner or manager. Negotiate a little.

YesYNot   2009 Jun 25, 3:39am   ↑ like (0)   ↑ dislike (0)     quote        

Money doesn't grow on trees. It's sitting in oil wells and ore concentrates around the world. We have already pumped out most of our oil and gotten rich off of it. Now, the Libya's are milking their cash cow. I don't mind US companies making money on projects in places with natural resources.

TPB, you can have an electric car if you want one, and you won't have to pay for big company marketing, corporate excess, and legacy expenses. You can take an older donor car, and pay about $5K for electric components & batteries. If you want to spend 12K or so, you can get the donor car and a kit with everything needed to drop in with no fuss. In LA, it is even easier. There is at least one shop that is producing cars or converting your car. I think it takes a week or two for them to do the conversion once you set up your appointment. Those types of kits would be good for short range (50miles or so).

A word about batteries. A taxi fleet in San Francisco put 300K miles on a fleet of ford escape hybrids with no battery issues at all over a period of about 3 years. Batteries do have a hard time with irregular use/disuse over long time periods. I think that a home brew electric with cheap batteries would make a killer daily driver over short distances.

YesYNot   2009 Jun 25, 8:37am   ↑ like (0)   ↑ dislike (0)     quote        

There is some info on registering at wikipedia:
http://en.wikipedia.org/wiki/Electric_vehicle_conversion#Registration_of_converted_and_newly_constructed_vehicles

It looks like it might be a bit of a pain to do in California. However, once registered as an electric only vehicle, it is exempt from a smog check. It is apparently unjustifiably hard to register as E only, as the computer systems require a workaround involving an individual in Sacramento to do something in concert with someone at the local DMV. Also, non-commercial E vehicles do not have to pay a road use tax. In some states, they may even qualify for an incentive. Commercial E vehicles do have to pay a hefty road use tax.

TPB, I agree that our auto giants should be doing this on their own. My point, though, is that if a consumer wants one, they are not a lazy ass, and they can do without a brand new rolling status symbol, then they can have an electric car for pretty cheap. If lots of people do this on their own or with a local small shop, then the message will be heard.

As for the DIY aspect, the components are off the shelf. There are kits with professional links to hook up an off the shelf motor directly to the clutch of several donor cars. If you want a particular car, then you have to have a link piece machined. If you don't want to DIY, then there are shops that can do all the work for you.

YesYNot   2010 Oct 18, 12:39am   ↑ like (0)   ↑ dislike (0)     quote        

It's possible that the whole world is in a real estate bubble. Real estate bubbles used to be confined to smaller regions or countries. In the last 10-20 years, it seems that the internet and media have made expectations and investing trends across national borders move more in lockstep. Thus, we have a bigger and more global real estate bubble.

iwog says

How do you justify this when the entire world is doing it at even higher prices??????

This is a circular argument, and the same could have been made about the US in 2006. It boils down to: "the price is right (no bubble), because people are paying it."

I would say that the price is what it is right now, because some small fraction of the population is paying it now. If that price is based on expectations of future appreciation rather than immediate utility, then the market is in a bubble.

YesYNot   2011 Jan 17, 3:58am   ↑ like (0)   ↑ dislike (0)     quote        

From that graph alone, rents go down about 10% of the time, rent inflation is lower than general inflation about 50% of the time, and there is never double digit rent inflation.

Iwog, the top 1% will never exert a bigger influence over rent prices than the bottom 90. Even if the top 1% bought up all available rentals, they can't live in the houses. At some point someone has to decide to live there and pay the rent. Over a period of several years, renters will suck it up and pay more if they have a job. But, over longer periods, they will look for other options such as doubling up, downsizing, longer commutes, or simply moving to another area to get a better quality of life. They will not continue to be bled dry indefinitely, and clearly their take home pay sets an upper limit.

YesYNot   2011 Jan 17, 6:25am   ↑ like (0)   ↑ dislike (0)     quote        

The bottom 90% control what they buy and where they live more than they control the value of their labor. The value of their labor is tied to the value of labor around the world, the portability of their job,and the whims of international corporations.
The one thing they do control is how they spend their money. If 90% of Americans were turned out to fend for themselves as you predict, then housing as an asset class would go to zero or whatever people could trade for it. Some 10 to 15% of housing would still have value. The top 15 cities (excluding outlying areas) have 30 million people or 10% of the population. If rents in these cities became so high that the huddled masses moved out, then these top 15 cities would hold their value. Everywhere else would go to zero. Too bad for Boston, Columbus, Charlotte, Memphis, and DC. Oh wait, this is not going to happen.
There is a possibility that the rich are forgetting what Henry Ford taught them about a livable wage. If that happens, companies continue to outsource and expand into cheaper labor markets, and the credit nipple is kept out the hands of the bottom 90, then life could get pretty crappy for the bottom 90. I would also think that housing in all but the most desirable locations would be a dog investment. Investments across the board would perform poorly. Most of the 'money' in rich peoples accounts and pension funds is either (1) a promise from joe six-pack or young person to pay or (2) based on the ability of a company to sell something to joe-sixpack in the future. So, if poverty is inflicted on the bottom 90, life will not necessarily get any better for the top 1 or 10%.

YesYNot   2011 Jan 20, 12:18am   ↑ like (0)   ↑ dislike (0)     quote        

On a percentage basis, it hardly costs any money to print some Calorie data for the customers. So the cost is about zero, and the payoff is huge.

Even if each person that walks into the door buys the same thing, they might walk in the door less frequently or occasionally try something healthier.
They might not get a large tub of popcorn at the movies if they know it will make them gain 1/2 pound.

You can't slap a warning on a pack of cigarettes and expect someone at the register to decide not to buy them. But you can hope to get change over the long haul by education.

Liberals want to help people make better decisions.
Conservatives want to give people the freedom to make their own decisions.
If you provide good information, you can help people make better decisions for themselves. This seems like a no-brainer.
If you withhold the information, the only people you are helping are a few executives at fast food companies.

YesYNot   2011 Jan 20, 11:37pm   ↑ like (2)   ↑ dislike (2)     quote        

YesYNot says

Even if each person that walks into the door buys the same thing, they might walk in the door less frequently or occasionally try something healthier.

Nomograph says

This is an excellent example of a faulted conclusion. A more correct conclusion would be “posting calories on menus has little effect on what *repeat* customers buy”.
In all likelihood, many former customers no longer patronize Taco Time, preferring to seek healthier choices. The study would not capture this.
YesYNot says

Liberals want to help people make better decisions.

Conservatives want to give people the freedom to make their own decisions.

Thanks, Einstein.

Wow, your main point was just restating what I wrote, and then you end with the Einstein bit. When did you become a grumpy parrot Nomo?

YesYNot   2011 Feb 2, 3:12am   ↑ like (0)   ↑ dislike (0)     quote        

The article states 130 million houses and 18 million empty. That is 14%, not 11%, so it is pretty hard to trust that the author of this article put much thought into things. Of the 18 million, does that include privately owned second homes? If so, they could hardly be called unused or available in any sense of the word. The US census had the # of households at 105 million in 2000. So, I'm betting that the 112 million are the number of households, and the 11% figure includes second homes used for work or vacation.
thomas.wong1986 says

he government-controlled mortgage companies’ inventory of foreclosed residential property has quadrupled in three years and now stands at a record $24 billion. The number of properties they own has increased fivefold to nearly 242,000,

So, according to this, the # of homes sitting around forclosed, empty, and possibly up for sale by Fannie and Freddie is 240,000. That number is much much smaller than and likely unrelated to the 18 million 'empty' homes.

YesYNot   2011 Feb 5, 2:23am   ↑ like (1)   ↑ dislike (1)     quote        

The plot that Vicente posted is not supposed to work for the Bay area. It is a national average. There are separate plots for particular cities, for the composite 10, and the composite 20. This is because the authors recognize that price swings have been more dramatic in some areas.

YesYNot   2011 Feb 6, 2:58am   ↑ like (2)   ↑ dislike (2)     quote        

iwog, do you know what they used as a measure of inflation when they did the Case-Shiller plot? My understanding is that there are many ways to measure inflation, and the vary quite a lot in calculating ratios over long time periods.

I checked here: http://www.census.gov/hhes/www/housing/census/historic/values.html, and their inflation adjusted median house price in 1940 was $31,000. In 2000, it was $120,000 (2000 dollars).

Using Case-Schiller, 1940 was maybe 75 & 2000 was 120 or so. So, 120/75*31,000 = 50,000. So, what this means is that whatever a median house was (square foot and quality) in 1940 should be worth about $50,000 in 2000. So, if we assume a constant price / SF, this would mean that the median house in 2000 would have to be about 120,000/50,000 = 2.4 times as big as the median in 1940.

This http://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf has house size data going back to 1973. The median in 1973 was 1500 SF. In 2000, it was 2100 SF. If we extrapolate back (I don't feel like trying to find 1940 data), then house sizes in 1940 would be about 900 SF.
This site http://www.moyak.com/papers/house-sizes.html claims that the average home in 1950 was 1000 SF. So, Shiller's chart showed a single median 1940s house going from $31,000 to $50,000. The median house in 2000 was about 2.3 times as big (2100 SF / 900 SF). This is pretty close to what we calculated from the Case-Shiller plot.

So, at first glance, inflation adjusted median home prices went up by a factor of 4 from 1940 to 2000. But, if you account for house size increases, it looks to me that the Case Shiller plot is pretty accurate.

YesYNot   2011 Feb 6, 4:48am   ↑ like (0)   ↑ dislike (0)     quote        

1) The Case Shiller plot that Vicente posted starting in 1890 is adjusted for inflation. It says as much right on the graph. The graph is based on cost ($). It is normalized to a value of 100 in order to make calculation of percent change easy to spot on the graph. Scientists typically report normalized numbers (typically ratios), because they are more intuitive than values with units. The normalized C-S type plots can be made with nominal prices or inflation adjusted prices.

2) The census data reports median house price in 1946 & median price in 1997. The median house in 1946 is very different than the median house in 1997. In order to better show appreciation of a particular house, Case-Shiller tracks changes on single houses. If you bought a particular house in 1940 that was 900 SF, and you sold it in 2000 it would still be 900 SF. So, the price of a median house in 2000 (2100 SF) does not accurately represent your house. CS can show the expected appreciation of a particular house that you invest in.

YesYNot   2011 Feb 6, 7:11am   ↑ like (0)   ↑ dislike (0)     quote        

iwog says

Therefore according to Case-Shiller, the MEDIAN HOME in 1940 selling for $3000. Should have sold for around $4000.00 in the year 2000.
$4000. adjusted to 2000 dollars is $49,000. http://www.westegg.com/inflation/
That abomination of a chart says that the median home in the United States in 1940 should sell for $49,000 in the year 2000. This is absurd and cannot be correct.

iwog,
You have agreed that the CS plot is correcting for inflation, so you're half way there. The other thing the CS plot does is follow a single house. A median house in 1940 is not the same as a median house in 2000. CS says that a house that passed for a median house in 1940 would be worth $50,000 in 2000.
The reason that CS does this is because you buy a particular house, not some mythical median house that grows from 900 SF to 2100 SF over a 40 year period. It is useful for seeing how your purchase is likely to appreciate over time.

Your math is correct, and is the same as what I posted above. However, you are missing one of the fundamental points of the CS plot. You usually have good insights, but in this case, you are flat out wrong - simple subject matter or not.

YesYNot   2011 Feb 6, 7:28am   ↑ like (0)   ↑ dislike (0)     quote        

I showed above that the median house in the US from 1940 was about 900 SF and should cost $50,000 in 2000. The median house in the US in 2000 was 2100 SF and cost $120,000. The ratio 120,000 / 50,000 is 2.4. That is about the ratio of the square foot increase (2100 / 900 = 2.3). So, CS predicts an increase from 30,000 to 50,000, and the rest of the price increase is due to houses increasing in size.

I lived in a house in SoCal for the last 3 years that was built in 1938. It was fairly upscale relative to the other houses nearby that lasted that long. It sold for $88,000 in the late 90s, went up to $400,000 and back down to around $200,000 since then. It is 1370 SF, so maybe 1.5 times the average size from that time. And, in 2000, it sold for about 1.5 times the $50,000 value.

What you have to think about is that many of the houses from 1940 have been replaced. The ones that are still standing represent the better portion. They are the Darwinian survivors of the wrecking ball, and are probably not accurate representations of the median house from 1940.

YesYNot   2011 Feb 6, 10:42am   ↑ like (0)   ↑ dislike (0)     quote        

iwog says

Homes aren’t priced per square foot.

No, but the prices do increase with size. They also increase with newer HVAC and better insulation. I'm making a rough estimate.

Furthermore you didn’t answer my question. You’re introducing homes that are not included in the Case-Shiller index because they aren’t old enough. Again………do you honestly think that the median home constructed in 1940 sold for an average of $49,000 in 2000?

CS claims that the median house from 1940 if still around and unimproved would sell for $49,000 in 2000. That is what the index was designed to show. They try to filter out improvements, because these require additional investment. The index is trying to show the return on a single investment (purchase). Improvements are filtered out by rejecting multiple sales within a 6 month period and weighting sales after long hold periods less (more likely that there was a significant improvement).

I don’t accept your estimate of 900 square feet as being a median home in 1940.

Fine, come up with a better one if you like. There are multiple references showing house sizes doubling from 1960 to 2000.

Homes that were torn down are not included in the Case-Shiller index since Case-Shiller ONLY measures same-home price changes so tear downs have no effect.

The fact that cheaper smaller houses from 1940 have been torn down more frequently than larger, better, more expensive houses changes the value of the median. CS does not try to predict the price of the median of the 1940s house still standing. It is based on paired sales of the same house.

Case-Shiller reports that homes built in 1940 average in price $49,000 in 2000. This means there are as many below $49,000 as above it.

Once again, you are wrong. This is not what that CS plot shows. It shows that the median (not average) house sold in 1940 (not built in 1940) if still available in 2000 and unimproved would be worth $49,000.
The median house built in 1940 was likely nicer and bigger than the median house sold in 1940.
Bigger and better houses are torn down less frequently than smaller crappier houses. Also, many houses have been improved. So, the median of all houses from 1940 still around today is nicer than the median of all available in 1940.

YesYNot   2011 Feb 6, 12:59pm   ↑ like (0)   ↑ dislike (0)     quote        

iwog, our primary disagreement is what the CS plot is measuring.

I think that the CS historical plot is based partly on houses that now may be torn down, or have not been sold recently for other reasons. Even if it did not include any tear downs for some reason, if you look at the median of the 1940s houses that are still available & track that house backward in time, you will find that it was not the median or typical house 70 years ago. So, the price of that house adjusted for inflation would have been higher than $30,000 in 1940.

You seem to want or expect the CS plot to match a plot of median houses adjusted for inflation. If that is what you want, just plot the median house price over time, normalize it to 100, and be done with it. The CS method is an attempt to correct for other factors such as technology improvements and size increases over time, and it should not match a plot of median sales prices.

I made some rough calculations and showed that the measure of price increase due to these other factors by the CS plot has been 2.4 over 1940 - 2000. This happens to match the amount that houses have grown in square feet give or take 10%.

YesYNot   2011 Feb 6, 1:06pm   ↑ like (0)   ↑ dislike (0)     quote        

MarkInSF says

yesYnot says

CS does not try to predict the price of the median of the 1940s house still standing.

And yet that is precisely what it claims to predict. Read the chart”
“…to track the value of housing as an investment over time”
If it doesn’t predict the value of an unaltered home purchased in 1950 or whenever, then what exactly is it’s use?

Like you said, the point is to track the value of housing as an investment. So, the historical plot that iwog and I were discussing predicts the value of one particular house in 2000 based on the value of that house in 1940. The ratio for that house adjusted for inflation should be 1.6 if it is in a typical american location (not a CA bubble zone). The ratio for that house will be different from the ratio of the median of the creme of the crop still standing 1940s house and the median house in that was standing in 1940.

YesYNot   2011 Feb 6, 9:54pm   ↑ like (0)   ↑ dislike (0)     quote        

MarkInSF says

YesYNot says

Like you said, the point is to track the value of housing as an investment. So, the historical plot that iwog and I were discussing predicts the value of one particular house in 2000 based on the value of that house in 1940. The ratio for that house adjusted for inflation should be 1.6 if it is in a typical american location (not a CA bubble zone). The ratio for that house will be different from the ratio of the median of the creme of the crop still standing 1940s house and the median house in that was standing in 1940.

Not sure I following. Are you suggesting that a home that is still standing today as it was in 1940 is not representative of a median home of 1940? That maybe a typical 1940 home standing today would have been say, in the 90th percentile of homes in in 1940?

Yes, that is the idea. I don't know if the 90th percentile is accurate, but I would guess that it is significantly greater than the 50th percentile.

YesYNot   2011 Feb 6, 9:59pm   ↑ like (0)   ↑ dislike (0)     quote        

iwog, you keep citing 1100 SF. Where is this link? I can't find it.

YesYNot   2011 Feb 6, 10:03pm   ↑ like (0)   ↑ dislike (0)     quote        

Case-Shiller tries to show how your investment will appreciate over time if you buy a house. It measures how an individual purchase in the past would have appreciated over time (if it is typical of the region being measured, national or one of the cities). Obviously, a landlord would have to take into account rent and upkeep. The chart is showing how the appreciation part has changed over the years.

YesYNot   2011 Feb 7, 3:00am   ↑ like (1)   ↑ dislike (1)     quote        

That 1100 ft2 is not from the census. Also, it is an estimate of houses build in the 1940s and 1950s, so call it representative of new houses in 1950 (smack in the middle of the 40s and 50s). Yet, you insist that it is exactly what the average house was in 1940, and that 900 SF is too small.

If you want to be so nit-picky and insistent, then you ought to be more precise.

YesYNot   2011 Feb 7, 10:16am   ↑ like (0)   ↑ dislike (0)     quote        

iwog says

YesYNot says

That 1100 ft2 is not from the census. Also, it is an estimate of houses build in the 1940s and 1950s, so call it representative of new houses in 1950 (smack in the middle of the 40s and 50s). Yet, you insist that it is exactly what the average house was in 1940, and that 900 SF is too small.

If you want to be so nit-picky and insistent, then you ought to be more precise.

I consider it 1000000000% more accurate than the blind guess that you provided.
Don’t you?
I’m getting real tired of providing data point after data point while the people who challenge me haven’t linked a god damned thing. You and game seem to think that blind assertions without a shred of support (900 sq. ft. home, house size gains, typical values) are perfectly fine ...

I was the first person in this thread to post a link to US census data on house prices.
I was the first and only person in this thread to post a link to US census data on new construction house size.
I was the only person in this thread to post the updated CS chart that the thread was started for.
I stated that 900 SF was an extrapolation of census data, and provided the link. So I was up front about it, and admitted that it might not be very accurate. I did state that other places on the web provide a rough figure of house sizes doubling in that time period. You come in and cite some random web site with one rounded off figure from the 1940s and 50s, and claim it is exact. You also claimed that it was census data, but you have not shown any link for that. At least I was being honest.

YesYNot   2011 Feb 8, 12:22pm   ↑ like (1)   ↑ dislike (1)     quote        

MarkInSF, thanks for that link. That was interesting. I had no idea how data for the long term plot was collected.
You can read more in the book, page 234, available for free on google books http://books.google.com/books?id=x1PaZY_KtBEC&printsec=frontcover#v=onepage&q&f=false.
The 1890-1934 data is based on sale pairs ending in 1934. For 1934 to 1953, the index uses the median value of 30 prices per city per year. The CPI data used for 1953 to 75 is based on homes with constant age & size, because they were trying to measure increases in cost of living for the same quality items. The data from 75 to 87 is from a repeat sales index.

So, all of the data outside of 1934 to 1953 was based on either repeat sales or some other attempt to correct for house size and quality improvements. The 1934 to 1953 data seems pretty weak. But, for those data there was no effort to correct for quality and size improvements, so that period is likely to have an upward bias.

One thing to note is that the Shiller chart shows an inflation adjusted rate of 0.7%. The US Census Bureau shows a median sales price increase of 2.3%. Iwog cites this as proof the the Shiller chart is wrong. Shiller thinks the difference is due entirely to quality and size changes. Lawler thinks that quality and size explains some but not all of the price change. Fair enough, but at least he understands the whole point of the repeat sales indexes.

YesYNot   2011 Feb 8, 12:37pm   ↑ like (0)   ↑ dislike (0)     quote        

Mark,

If a 10 acre lot is sold to a developer, then the developer divides it into 20 1/2 acre lots as in your example, the first sale from the original owner of the 10 acre lot to the developer counts. That is representative of appreciation of the original house.

The next sale from the developer to the new owner of a 1/2 acre lot is excluded. The assumption is that the developer built a house on the lot, so that price is not due to appreciation.

I'm sure that there are some issues where positive appreciation is excluded. There are probably also cases where some improvement sneaks in. Hard to say what the net effect is.

YesYNot   2011 Feb 8, 9:18pm   ↑ like (0)   ↑ dislike (0)     quote        

MarkInSF says

Hmmm. That’s not entirely clear to me.

The pairing process is also designed to exclude sales of properties that may have been subject to substantial physical changes immediately preceding or following the transaction….Transactions where the seller may be a real estate developer (based on the seller’s name) are also excluded, ...
Buying for subdividing sounds a lot like a substantial physical change immediately following the transaction, but it is only specific about developers with regard to them being the seller.

Good point. It's not very clear. I don't know why they would exclude the sale with development following the transaction. That's also a good point about the BLS data. That is the time period that Lawler disagreed with the most, too.

Here's the real question. Of the difference between Shiller's plot and the median price plot, how much do you think is due to size and quality difference (as Shiller chlaims) and how much is due to land value increases or other errors?

Shillers long term chart is for the US, and shows a $30,000 house in 1940 (adjusted for inflation) going for $50,000 in 2000. The median sales price over that time went from $30,000 to $120,000. I estimated that the price increase in median sales price due to size increases was from 50,000 to 105,000. That gets it up to 105,000 or within 15%. That seems close enough to me. As Shiller pointed out, 1/3 of houses in 1940 had no running water, so improvements over that period have to count for something. If we say that quality improvements to the median house such as running water, extra pipes run to bathrooms, closet size, standard kitchen counter sizes that can accommodate dish washers, better HVAC, modern wiring, etc. are worth $10,000, then that leaves about 5% left over unexplained.

I agree with iwog's point that the house price is not linear with SF, because much of the value is in the land. So, let's look at the price increase due to SF as a $/SF value instead of a linear increase with SF. If the structure went from 1000 SF to 2100 SF (median of new construction), then the size increase is 1100 SF. New construction of this would cost $100/SF. Let's call the old building worth 50% of that, so $50,000. That still brings the median price up from $50,000 to $100,000. So, size increases & improvement still account for 90% of the price by those terms. Again, pretty good, I would say.

So, what is your estimate?

YesYNot   2011 Feb 8, 9:30pm   ↑ like (0)   ↑ dislike (0)     quote        

game, I think that both the Shiller and Lawler plots are reasonable. Shiller himself isn't sitting around calling for a reversion right back to 100 on his graph. A little while back, he was saying that another dip was possible, but that prices could continue up as people get excited again.
I've been guessing that prices still have some falling to do based on the Shiller plot, but am unsure. That is why I spent so much time on this thread.

YesYNot   2011 Feb 9, 6:07am   ↑ like (0)   ↑ dislike (0)     quote        

MarkInSF says

Actually, saying the increase in median price from 1940-2000 is fully accounted for by changes in size and other improvements is a different assertion than saying a home that was standing in 1940, that is still as is today has tracked inflation.

It pretty much is the same thing.
The WSJ article you cited says

Mr. Shiller's chart shows that home prices from 1940 through 2000 rose at an annual real, or inflation-adjusted, rate of 0.7%. Data from the Census Bureau, however, puts the real rate at 2.3% for that period. Part of the difference may be due to improvements in the quality of homes, Mr. Lawler says, but he doubts that accounts for the whole gap.

Mr. Shiller responds in an email that much of the difference "is indeed caused by quality change." He cites Census data showing that nearly a third of American homes lacked running water in 1940.

Both Lawler and Shiller agree that is what it means.

MarkInSF says

It is entirely possible that appreciation is very slow initially after new construction, not even keeping up with inflation, but accelerates as the house gets older, and it’s land value become a greater component of it’s value due to crowding.

I agree. A new house structure should depreciate at first, and that depreciation could offset or outpace appreciation of land. The index does not apply perfectly for any particular home be it new, old, in a tony neighborhood or in Detroit, so expecting that kind of accuracy is asking too much. The current methodology only reflects the average growth in a particular market. They define the average as the aggregate price. So each percent appreciation is weighted by the house price.

MarkInSF says

Another data check: http://www.census.gov/const/pricerega.pdf shows the inflation adjusted median home price going up 24% from 1963-1975. BLS/Shiller sho

Those look like new construction prices. The median price of all sales in 2000 was $120,000. That link shows $169,000, which is the median price for new construction. As you said, most new construction is in the region where a city is expanding and land values are increasing the most.

YesYNot   2011 Feb 14, 5:10am   ↑ like (0)   ↑ dislike (0)     quote        

iwog says

I wish people would stop making this argument. It doesn’t work that way. Interest rates and real estate prices generally rise together. High interest rates did not “kill” real estate in the late 1970’s, in fact they were concurrent with one of the biggest real estate booms in history.

Hard to see from a plot of median price of new houses over time.

Easier to see when you plot the derivative of the median price of new houses. If anything, increasing the fed funds rate leads to a drop in appreciation or even a drop in price. I used median data from the census without any inflation correction or correction for new house size.

YesYNot   2011 Feb 14, 6:32am   ↑ like (0)   ↑ dislike (0)     quote        

Sorry, I should have stated this earlier. In the first plots, the FFR data were monthly, and smooth enough, so no averaging was done. The median price data had a lot of monthly fluctuation, so the derivative was meaningless. In the first plot, I did a 13 point moving average of the monthly data, essentially averaging over the year. It looked smooth enough, so I left it alone.

In the next plot (this post), I did a 11 point moving average on the fed funds rate & the already averaged median price data. This one is a lot smoother, and the lines have not otherwise changed much. As expected, the averaging made the peaks a little less extreme. For instance, the peak interest rate went from 19% to 17% or so in 1981. Applying the averaging twice like this allows data 12 places away 1 yr in either direction to influence the value at any one point.

The derivative is center weighted: (price_n+1 - price_n-1)/(2/12) := $ / year. This was normalized to percent change by dividing multiplying by 1/(price_n)*100.

YesYNot   2011 Feb 14, 8:03am   ↑ like (0)   ↑ dislike (0)     quote        

When I look at the smoothed graph, I see many instances of a fed funds overnight rate increase preceding or coinciding with a drop in appreciation or a depreciation of RE prices. This happens in 1968, 1975, 1980, 1987, 2006.

I put the Freddie Mac 30 yr rate on the first graph, but dropped it because (a) it doesn't go back as far (b) it doesn't seem to correlate as well partly because the swings in the 30 yr rate are less dramatic.

My guess is that the overnight rate corresponds well through some indirect correlations with demand such as how the economy is doing as a whole like iwog said. The 30 yr rate just impacts price directly though the monthly nut.

The main point, though, is that high interest rates (overnight or 30 yr) do not have a strong positive correlation with house appreciation. For periods of high inflation, you would expect both to rise. This was true to some degree in the 1970s (iwogs favorite example), but the increase in the interest rate from 1977 to 1981 was followed with a cooling of the housing market (1978 to 1982). This seems to me to be great evidence that increased borrowing costs slow down demand.

YesYNot   2011 Feb 14, 9:37am   ↑ like (0)   ↑ dislike (0)     quote        

Troy says

YesYNot says

This seems to me to be great evidence that increased borrowing costs slow down demand.

It’s utterly bizarre why this is even being debated.

Troy, I agree with most of what you are writing. I made the graphs because (1) there has been a lot of debate, mostly driven by iwog on this and (2) high inflation means that the dollar decreases in value. Thus prices of everything, including oil, gold, food, and houses will often go up when measured in dollars.

Here is the latest plot with the CPI included.

The baby boom bulge was from 1945 to 1960 roughly.

So, the inflation & house price increases in the 1970s was probably caused in part to the baby boomers (BBers) being 18 to 28 (average age in 1970 & 1980). This led to an increased demand for houses as well as a general increase in # of jobs and economic activity. The 1970s also saw an increase in # of women in the workforce, further increasing the # of workers. In the next 30 years (1980 to 2010), the BBers were putting money into the stock market, leading to some leveraging up. Also, there was a huge SS surplus, which led to free government stimulation through spending more than the income tax. Now (2010), the baby boomers are 50 to 65 yrs old. So, they are starting to take money out of the stock market, some may die or downsize, etc. So, there will be some deleveraging over the next 15 years as the BBers do the traditional things that people of that age do. Also, there will be a social security (SS) deficit, so the government will have to spend less per $ of income tax (non SS spending). This spending decrease is also going to slow down the economy.

That is the big difference between the 1970s and now in my mind. The 1970s saw the BBers enter the workforce. Now, the BBers are exiting.

YesYNot   2011 Feb 16, 1:15am   ↑ like (0)   ↑ dislike (0)     quote        

I don't think optimism / pessimism or risk loving / risk aversion has much of anything to do with predictions on housing.

The guys at Magnetar Capital (http://en.wikipedia.org/wiki/Magnetar_Capital) were very optimistic about their chances of getting wealthy & took huge risks based on an idea that was very 'pessimistic' about housing.

Buying one house is probably the safest bet. If a big bust comes you're in the same boat as everyone else for the most part & will be baled out to some degree & maintain a buying power similar to your peers. If there is inflation & house appreciation, the buyer is looking good. This might be a reasonable thing to do for someone who is risk-averse.

Buying 10 houses constantly leveraging up is very risky. If the market goes down & rents stay flat or decrease, you might go belly up. Plenty of late night TV watching housing speculators found that out. This is a strategy for either a risk loving person, or someone who starts with nothing. There is a reasonably good chance at making lots of money & if you have nothing to lose, and can get someone to loan you the money, go for it.

Having a sizable cash position, but no house, property investments, or inflation hedge is pretty risky as well. If there is a lot of inflation with house appreciation (an effort to bale out others), and you are one of the few of your peers without a house, you will be screwed. Your relative buying power will go in the toilet. So, this might be a good position for a risk-loving person who is optimistic about their future but thinks that housing is going in the crapper (the Magnetar position). This position is a pretty strong bet on continued deflation / housing depreciation. Nomo might label a person with this position a chronic pessimist, doom and gloomer, or toxic person. However, the bet you make has nothing to do with a persons sense of personal optimism or emotional state.

Calling people pessimists, losers, or afraid of risk does not move the conversation forward in any useful way. It's just a distraction & sales tool of Realtors at times.

YesYNot   2011 Feb 16, 5:09am   ↑ like (0)   ↑ dislike (0)     quote        

terriDeaner says

Interesting analysis. So what good inflation hedges are currently available for purchase besides housing? TIPS? Gold? All seem arguably overpriced. And in the case of strong inflation, won’t deposit rates go up?

I don't know what the best inflation hedge is. Personally my money is in index funds (weighted a bit more overseas than typical), lifestyle funds, and cash. My wife and I do not own a house. We have moved around too much, are moving to another state again in a couple of months, and will probably move again a year after that. I recognize that where my money is at the moment is a bet against inflation over the short term. On the other hand, my wife has high student loans from vet school. If we get high inflation, at least those will decrease in size (relatively). That is our hedge. On a related note, I do not think that house prices can appreciate much without wage appreciation. That is just not sustainable.

Let's say, you are interested in buying a house for $100,000 & you have a 20% down payment of $10,000. I used these numbers, because it is easy to scale everything for some other purchase price. Lets also say that inflation is 10%, housing goes up 10% per year, and you get 10% on your money in CDs or conservative investments.

You might think it is a wash to buy, but it is not.
If you buy today, you take a mortgage for $90,000.
If you buy in 5 years, you have $16,100 in the bank, but the house went up to $160,000. So, you get to take a mortgage for $144,000.

In an inflationary environment, housing would have to appreciate at 1.2% while you earn 10% over 5 years to break even (in this oversimplified model). In that case, the the mortgage in 5 years will be $90,000, which is the same as it would be if you bought today. The reason is that the house purchase is a highly leveraged investment, and is therefore a highly leveraged bet on inflation.

In a deflationary environment, it's pretty hard to win on a mortgaged house.

YesYNot   2011 Feb 17, 11:48am   ↑ like (0)   ↑ dislike (0)     quote        

rewrew7 says

How’s this for a crazy view point: it’s a good time for investors to buy but not a great time for a would be owner to buy.

This makes sense to me. The article made the point that it is a good time to buy some houses in SD now if you are going borrow money and hold for a long time. If you need to sell in 5 yrs, it might not be a good time to buy. This is pretty clear from the high price but low payments (relative to historic levels) due to low interest rates.

The only bad thing for the long hold leveraged buyers would be deflation in rent coupled with price declines.

The first plot has monthly mortgage payments as a fraction of annual per capita income. The typical value is around 0.06. Multiply this by 12 months, and the mortgage payments to income ratio per year is 72%. The high in 1981 was 0.11, which is 132% of per capita income. If there are two wage-earners per house @ 25%tax rate, that means that the mortgage was 88% of the total take home pay. I can't imagine there was much buying and selling going on at that time. The current low value of 0.035 is 42% of per capita income. That's still pretty high.

YesYNot   2011 Feb 22, 7:19am   ↑ like (1)   ↑ dislike (1)     quote        

iwog says

YOU are the one making a hill of beans out of 8% worth of movement that is mostly seasonal variation. It’s the middle of winter for god sake, and you think the market is continuing to crash?

Iwog, you have a pretty good track record predicting things on this board. I agree that so far your prediction of a housing bottom in 2009 is accurate. The govt intervention did stop the free-fall for the time being. The next year or so should tell if the fall will continue and if you were right or not.

You have a habit of spouting untrue things in your arguments though. The data below show both the seasonally adjusted and non-adjusted Case Shiller data for 10 & 20 cities. The increase and subsequent decrease that klarek showed from spring 2009 through now is not a seasonal variation.

YesYNot   2011 Feb 24, 11:53pm   ↑ like (0)   ↑ dislike (0)     quote        

This is pretty funny to watch...
iwog: quoting an article... 'Forclosures are increasing in January 2011 the same as the do every January'
dunnross: they increased 34%. This is more than a seasonal increase, and qualifies as a spike.
iwog: it spiked in January after dropping 3 consecutive months in a row. [implies that the 34% spike was just a bounce back after the presumably equal magnitude decrease]
dunnross: it only declined 1.1% from Nov to Dec [implies that iwog's reason for the spike is wrong]
iwog: are you going to state your point [it was pretty obvious to everyone else]
iwog: i haven't used the term seasonal variation in this thread [but you quoted an article stating that increases in January always happen. You gave a reason for the 'seasonal' variation. What next are you going to start debating the meaning of 'is']

YesYNot   2011 Feb 27, 1:47am   ↑ like (0)   ↑ dislike (0)     quote        

For the cheap mobile home double-wide look, I think that clayton has houses for $40 or so per SF.
For a cheaper upscale option, look at clayton's i-house. $100/Sf or so or up to $130 with bamboo floors, upgraded appliances, 4kW solar panels, water collecting roof, rooftop deck, etc.
For an upscale home delivered on a trailer and set up to be livable in a week, look at bluhomes. These are steel framed houses built in a factory, and then partially folded on heavy duty hinges for transport. They go for $200/SF and are very nice looking to me. They go for $150K to $500K for the building alone.
I think that there are some really cool things being done with used shipping containers. If you google container home you will find all sorts of examples. The basic idea, is that you use 8x8x40 foot containers to build up structures. They are only a couple of thousand dollars each, because it takes too much fuel to ship empty boxes back to China. So this is a cheap way of getting a strong steel structure. Lots of architects seem to be getting in on this trend. They can do big cantilevers, and lots of glass. To fit in with your fast build requirement, you could look at the quik-house, which is about $180K for a 2000 SF house. I get the impression that it would be faster than a traditional house, but not super-fast like the other options.
I think prefab, trailer, and container homes can be done super cheap or super nice. The same can be said for a stick-house. Traditionally, prefab has been done on the cheap.

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