Are real house prices flat or increasing over the long term?

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Are real house prices flat or increasing over the long term?

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2011 May 15, 6:21am 1,935 views 7 comments

by terriDeaner ➕follow (0) 💰tip ignore

Here's an interesting comparison of the Shiller 100-year index and the CoreLogic HPI from calculatedriskblog:

The upward slope of Real House Prices
http://www.calculatedriskblog.com/2011/05/upward-slope-of-real-house-prices.html

McBride's opinion is that:

"In many areas - if the population is increasing - house prices increase slightly faster than inflation over time, so there is an upward slope for real prices."[...]

I think they are both showing that prices are not far above the historical lows. Prices might overshoot to the downside because of supply and demand issues; there is a large overhang of vacant housing units and many distressed properties still coming on the market, plus demand is soft with weak employment, fairly tight financing, negative home buying sentiment and some usual buyers excluded because of credit issues. [...]

BUT...

usually near the end of a housing bust - after nominal prices stop falling - real prices decline slowly for a couple more years, and we will probably see that this time too. Of course, right now, nominal prices are still falling.

real house prices

His issue is that Shiller parameterized his model based on FHFA data from the 1975-1985, which McBride believes did not reflect the true state of the housing market at that time. I can't say which model is better (Shiller = real prices flat or CoreLogic = real prices increasing).

I have a few of issues with this analysis though:

1. I'd like to see how the line slopes were calculated/modeled for those very curvy curves

2. I'd like to see how these indices compare on smaller scales (like San Jose versus Phoenix), relative to census population data and current population trends

and

3. I'd like a better explanation of where CoreLogic's data came from over the contested period.

#housing

Comments 1 - 7 of 7 Search these comments

1 swebb 2011 May 15, 10:55am

1. It sure looks like he computed the line that passed through the two post bubble lows.

terriDeaner 2011 May 15, 2:42pm

I think you're right that he intended to draw the lines through the troughs. But how well did he do? Both lines just look eyeballed and arbitrary to me - lots of room for slop and interpretation.

FNWGMOBDVZXDNW 2011 May 17, 5:05am

I agree that there is a lot of room for interpretation. The difference in slope between the blue and red lines is about 1% / yr. These are inflation corrected, and there is debate about whether the inflation rate is accurate to 1%. If house prices have historically gone with inflation over 50 years, but people have changed the way that inflation is calculated, then house prices as well as other prices could start drifting away from the long term trend by a percent or two a year.
I realize that the lines were corrected for inflation using the same inflation data. I'm just saying that determining whether or not they are flat depends on what you used to normalize for inflation.

terriDeaner 2011 May 17, 1:09pm

YesYNot says