patrick.net

The difference between 1968-71 and 2010 is about three trillion in market cap of various tech companies in the South Bay.

The South Bay *invented*, and greatly profited from, the personal computer, the most wealth-creating advance of the 20th century.

The South Bay was a sleepy cowtown and orchards before tech hit.

I thought it was big budget features like The Milpitas Monster that kicked things off for the South Bay.

Tatapu70,

Case-Shiller is based on comparing multiple sales (over time) of the same house. It then aggregates the statistics of such same-house sales. In other words, C-S looks at specific houses, namely those with multiple resales, but then naturally also aggregates many such houses to get a more accurate statistical estimate of price increases.

C-S is also uses the concept of CONSTANT QUALITY houses. If someone puts money into changing the size of the house, say doubling the size. C-S does not count that as a constant quality house. And it shouldn't. If the price went up because you increased the size or standard of the house, that changes both the baseline cost and the new value. If you doubled the house size with an addition or re-build, and the new price went up, some of that must be attributed to the size doubling. Just as an example. Other types of upgrades also matter.

I quote from Wikipedia:

The Case–Shiller Home Price Indices are constant-quality house price indices for the United States. There are multiple Case-Shiller home price indices: A national home price index, a 20-city composite index, a 10-city composite index, and twenty individual metro area indices.

Forget about defaulting, how many countries owe us billions or trillions for saving their bacon when no one else would or could? How about most of Europe, certain Middle Eastern kingdoms? One could go on and on. Maybe it is time to call in those markers!

I also posted an entire page full of homes for sale in the 1930s from all over the country. Instead of acknowledging it, you ignored it.

What would be much more interesting is a sampling of such properties with sales histories or even just tax assessments from over the last seven decades.

CPI in 1925 = 17.5
CPI today = 216
average salary 1925 $1300 a year. [not sure if this is per worker, or per capita]
Home prices in metros 5000 to 10,000.

yes, major California cities have seen higher than inflation price increases. This stands to reason, as they basically grew from nothing to modern cities over this time frame, and the nature of supply and demand have not grown the same in major cities over this time. Salaries have also apparently grown faster than inflation as well, but then again, standards of living have increased. homes today are a bit bigger than 600 square feet of 1926, have more than one small bathroom, have electricity and running water...

These people are probably responsible for the rise in consumer confidence.

Bap33,

Houseprice/income has increased over a number of years from a historical typical value of about 3/1 to over 7/1 in some areas. I think that is well established.

pkennedy--

But, don't you agree that using a countrywide Case-Shiller and applying it to the BA isn't appropriate? I doubt Case or Shiller would try to use the index in that way. Does anyone have a BA index?

I think you all are getting too wrapped up in trying to rationalize absolute/nominal valuations when all you really need to worry about are relative comparisons. Clearly, sometime in the very late 90's house prices became unhinged from their historical levels. In the Bay Area one could argue that it was tons of highly paid high-tech people bidding up prices. And I'm fine with that. However, when the bottom fell out o fthe tech market, wages dropped and people were unemployed; the pace of house price appreciate accelerated. This was clearly a speculative anomaly/bubble. House prices should track people's ability to pay, ie: wages. However for reasons that have been beaten to death house prices continued to climb.

So as I see it, we need to get back to 2000 prices in order to come back to wage-supported valuations. And even that baseline may be too high as employment was higher in 2000 than it is now.

grywlfbg says

So as I see it, we need to get back to 2000 prices in order to come back to wage-supported valuations. And even that baseline may be too high as employment was higher in 2000 than it is now.

Yes, but there has been 10 years of inflation since then.

@justme

Did you EVER go to the site he referenced?

He pointed out bay area priced housing from the 30's (that is on the site btw if you go there...)
He pointed out their cost
He plotted in onto their data, pulled their value that they should be today

There should be *MANY* houses in around that area. We don't need to be as diligent as case shiller and plot one for one. We simply need to know average costs, and we should find some outliers that fit their methods.There aren't.

Here is one from the site. Now we just need to find a 5 bedroom place in oakland for roughly $80,000.

1934 Oakland California
5 room stucco bungalow , breakfast room , separate garage, delightful location
$3,750

thunderlips11 says

Tenouncetrout says

April 6th, 2010 at 1:33 pm | top | q

I have noticed this as well, not Cali, but Oregon, prices dropped a good 20% since the New Year. At least on Craigslist!
What hasn’t been changing in price are the McMansions - they are still in the 400k plus range, laying like snakes on a Southern rural road.

Oregon was late to the sub prime game aka more alt-a type loans and foreclosures aren't going down here but on the rise. The starter homes are moving but they've never really slowed down that much and those are still high priced IMHO.

Going up sure, right into the fryer.

To criticize data that is widely accepted across the country, shouldn't you provide information from a source a little more reliable than one that looks like a 5th grader made it for a history project? You guys are citing that site as if it's gospel.

The government is throwing trillions of dollars at the housing market to make it rise. We have Fannie and Freddie, the FHA, the mortgage interest deduction, the $8000 tax credit, the "Make Homes More Expensive" Obama plan, and we have the Federal Reserve buying trillions in mortgage backed securities.

So housing prices might go up, but if housing prices rise it is only because the dollar is falling and the price of everything else is going up also. The real question is whether the government can continue this massive giveaway to the housing market.

I am guessing that the realtors of the '30s weren't into measuring sqft. so they just reported number of rooms. A 5 room house might well be a 3/1, of which there are plenty under $100,000 in Oakland.

E-man:
If the low end (less than $500k) is stabilized, what's your opinion of ranges above that, say $600k-$800k range and $800k+ range.

Your wages should be directly compared with another graduate, not someone with a bunch of years of experience.

I'm betting the historical data is out there. The point is he found some of it, and it might be questionable, but at least it was something. If someone wanted to counter it, they should go find better data, and either confirm or deny it. Simply ignoring it, and constantly re-asking isn't useful. There were several price points from all over.

I simply don't see how housing can track inflation, unless housing is defined as inflation. In the 1930's the penisula was farm land. We wouldn't consider interior farm land down the cost of california to be worth what a small plot in palo alto is worth today. Land has gone up significantly. Perhaps without any demand, housing follows inflation, but in any city where demand increases, that alone must be one of the biggest driving factors.

E-man,

Okay, so what about the Milpitas (1971) and SJ (1968) houses?
Well there is a big problem:

The SF METRO (and all the other local/metro) C-S indexes only exist for years 1987-2010

It should be obvious to anyone that an index cannot be "wrong" about some year that it does not claim to cover, even if the metro area did cover SJ and Milpitas in a meaningful manner (which may or may not be the case).

Can we agree on that?

tatupu70 says

grywlfbg says

So as I see it, we need to get back to 2000 prices in order to come back to wage-supported valuations. And even that baseline may be too high as employment was higher in 2000 than it is now.

Yes, but there has been 10 years of inflation since then.

That is the "inflation-adjusted" price. The raw price would be 1997 prices. I chose 2000 as a guess of where things should be had the bubble not happened.

Justme - SF Bay Area Case-Shiller does not cover Santa Clara County. So it does not cover SJ and Milpitas at all.

And also last years bump in consumer savings, which is way back down there in the toilet today.

It would have been great if this applicant's monthly income was noted...WTF...$1,700/month in retail purchases? They must have a huge 5,000 square foot house or where else are they storing all this crap!

MarkinSF said:

Funny thing is, the most extreme bears aren’t even willing to allow for inflation.

Yes, its odd given we actually work for employers in a highly deflationary industries.

How about a lady complains her hubby is not getting enough income, when the hubby is a proffesional who earns 400K/yr. Ever seen one?

pkennedy says

I simply don’t see how housing can track inflation, unless housing is defined as inflation. In the 1930’s the penisula was farm land. We wouldn’t consider interior farm land down the cost of california to be worth what a small plot in palo alto is worth today. Land has gone up significantly. Perhaps without any demand, housing follows inflation, but in any city where demand increases, that alone must be one of the biggest driving factors.

1980s due to great growth in industries, and down in early 90s due to bust in tech and competition from overseas. Up again due to infusion of $100B from VC investments (1998-2000) and than again due to stock option cash outs from highly inflated prices (1999) and up some more with ARM loans with new buyers after 2002 gambling on a second wave of get rich from stock option cash outs.

Over the past 10-12 years prices did not track inflation or incomes as they did in prior years like 1980-1997. We didnt have toxic loans in the South Bay back in my day nor did we have highly inflated stock options or a bubbles from investment dollars which influenced home prices.

All the abnormal influences are slowly vanishing!

http://www.businessweek.com/print/magazine/content/10_15/b4173013214814.htm

CHARLIE ROSE
The S&P Case-Shiller Index for January saw upticks in 12 major metropolitan markets. Is that an encouraging sign for the housing market?

ROBERT SHILLER
The fact that [prices] are up on a seasonally adjusted basis, although the market has been weakening, is definitely encouraging.

CHARLIE ROSE
You said on Bloomberg Television yesterday that there is a 50-50 chance of a double dip in housing.

ROBERT SHILLER
I am really going out on a limb to say it's as high as 50-50. Double dips are rare. You know, I have a forecasting model that I used to use years ago when we were doing forecasts for The Wall Street Journal in the late 1990s, and that model emphasized momentum before anything else. When prices go up, they tend to go up for years. That's history. Whereas if they start going down, they'll go down for years. We saw home prices decline between 2006 and 2009—three years of decline. And now that [the market is trending] up, you know, it's perfectly plausible to think we'll have three years or more of increases. But I'm not so sure. We don't know how much of this is transitory because of the government support. We're in such an unusual economy now that [a double dip] has substantial probability.

CHARLIE ROSE
You've said that 90% of the housing market is supported by the government.

ROBERT SHILLER
Well, it's 80% or 90%. Really almost the whole market now is government. And we know this can't last.

CHARLIE ROSE
And that means prices are being artificially inflated?

ROBERT SHILLER
It seems to. Government support is especially prominent in sales of existing homes, which shot up to over 6 million on an annual rate in November 2009, the month that the home buyer tax credit initially was supposed to expire.

wow ... how can that be ignored?

Thats right Bap33, its just fools catching the falling knife encouraged by the government.

thomas.wong1986 says

Thats right Bap33, its just fools catching the falling knife encouraged by the government.

Did you read the article I did? Shiller said that double dips are extremely rare, momentum is the most important factor, and that the odds are at most 50/50 of a double dip. But people buying now are "fools"?

tatupu70 says

Did you read the article I did? Shiller said that double dips are extremely rare, momentum is the most important factor, and that the odds are at most 50/50 of a double dip. But people buying now are “fools”?

Yes, its pretty clear, did we have government interference during normal market corrections like say Stock Market Crash in 1987 or 2000 ? NO! did we see double dip then ? No.

Today we have government interference inflating prices, yet prices still unaffordable based on incomes and certainly well off the inflation trends. Yes things are pretty clear to me.

Would it make any sense say back in 2000 if the government stepped in and said Yahoo or many other overpriced tech stock were too big to fail and bough its shares keeping the stock price at say $150 or $200/share when it fell from peak at $350/share? Who would be foolish to buy Yahoo or the many tech stocks whose prices were obscenely overpriced. Should you not have had a double dip under that scenario?

m1ckey6 says

I currently own RE: Prices are going up, the worst is over!
I am currently renting: The drops have only just started, buckle up!

Going back up where ? Cant wait to sell my Yahoo wall paper for $350 a sq foot.

Please tell me this person was denied!

*Lots of economic news today. Stock market up. Gold up. Interest rates up. Employment up. Home sales WAY up.*

These are all the news that are reported in media. You should verify and back it up with legit numbers.

thomas.wong1986 says

Today we have government interference inflating prices, yet prices still unaffordable based on incomes and certainly well off the inflation trends. Yes things are pretty clear to me.

I agree with some of the others here--housing should track incomes more than inflation, but either way it's going to be local. You're probably looking at your particular local market. I think Shiller was referring to the US in general. There will most certainly be local markets that lag the market and continue to decline even after the rest of the country has begun to recover.

The analogy to Yahoo is not a good one.

tatupu70 says

The analogy to Yahoo is not a good one.

We can switch to RE, and look from 1989 to 92. Did we see direct goverment interference in the RE market, trying to stop prices from falling by giving out tax refunds/rebates/loan modifications/GSE bailouts? No! and therefore didnt see any double dip in RE prices. In fact we saw some pretty heft price declines to a point where the market prices met incomes. Shiller wrote in his book, Irrational Exhuberance, that asset bubbles do pause when you have external forces at work. But like he said above, it cant last.

azrob00 says

Stock market is having it’s strongest rally since 1930… what could possibly go wrong?

funny guy!

http://www.lasvegassun.com/news/2010/apr/09/residents-lake-las-vegas-told-recovery-way/ "During the two-hour meeting at Loews Lake Las Vegas, residents aired grievances with city officials and asked questions about the future of their lakeside community. "Many complained about landscaping and zoning issues, while others expressed concern that their home values are plummeting and asked what the city was doing to help. "Casino Montelago closed March 14, and The Ritz-Carlton will close May 2. Combined, more than 500 workers will lose their jobs. “I can tell you from a business point of view, that hotel is worth a lot more open than it is closed,” Sisolak said. “Those golf courses will again be green.” "Lake Las Vegas Chief Operating Officer Jim Coyne said the development should emerge from bankruptcy by the end of June. "But attendees challenged officials to provide concrete signs that the situation is improving." ---------------------------- As mentioned in the OP, this development was extremely high-end and the empty lots sold for more than $1 million during the height of the bubble. They've plummeted, some condos well below $100k with higher HOA fees - some as high as $700/month. (http://www.trulia.com/voices/Home_Buying/IS_the_Lake_Las_Vegas_area_good_area_to_purchase_a-85926) The area is beautiful and was the brainchild of several optimistic developers, but it's in bk and there are so many foreclosures it's unbelievable. So what do the homedebtors do? They blame the govt and ask what more they're doing for the community. Sure, there are people who are hurting there - but many of them are outrageously wealthy and can sell at a loss, still remaining solvent. There are more people in trouble in other areas, and the govt ain't doing much for them. Why are these people special? They're not.