patrick.net

"Lawrence Yun of the National Associations of Realtors has ratcheted up his criticism of Shiller. Yun calls Shiller's index a "total distortion of market conditions based upon a small selection of falling local metro coverage."

And the minions of the NAR are still spreading their gospel.

Yun suggests that Shiller profits from creating fear. He creates fear so that people will want to hedge themselves against price declines by buying insurance against a free fall in prices. Where is such insurance available? Answer: on the S & P Case Shiller index traded on the Chicago Mercantile Exchange. According to Yun, Shiller has a "side business in Chicago. His index is used at the Chicago Mercantile Exchange for hedging housing futures values. The more hedging of bets that occur, the more profits go into Dr. Shiller's bank account. And more hedging of the bets will take place if people believe there will be a crash in housing values. So naturally he has a financial incentive to ‘scare' the market."

At the end of the day, we have a lot of Realtors, slick talking salesmen, on this web site... and they are very afraid the gravy train will stop.

YesYNot says

. 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%.

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 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.

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.

Until prices drop as was the case in 89-92 and more recently. Anyway, land around here isnt that valuable when you have alternatives. Expensive yes. Nowdays industries have parked their operations far away from the Bay Area. So to speak of valuable land ignores that industries that fual paychecks are moving elsewhere. And that eventually will correct the imbalances we see and have seen in the past.

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.

ch_tah says

If you are trying to support the notion that Shiller is great at predictions, I wouldn’t link an article that shows he was early by 5 years in calling the peak, not to mention the fact that for some parts of the BA, he’s still just flat out wrong and prices are well above their 2002 prices.

I think the bubble would have popped MUCH earlier had the government not heavily intervened in the market. By all rights it shouldn't have taken 5 years. He simply called it as being a bubble, and he was right.