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Real House Prices Back To 1999-2000 Levels

By JFP   2012 Dec 27, 12:37am   ↑ like (1)   ↓ dislike   1 link   12,645 views   91 comments   watch (1)   share   quote  

According to Calculated Risk, real house prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels. Does anyone seriously expect a drop below these levels? See

1   121212   2012 Dec 27, 2:31am  ↑ like (5)   ↓ dislike (2)   quote   top   bottom   home   share  

Yuup. May slide some more.

Should of happened sooner and faster.

2   JFP   2012 Dec 27, 2:33am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

Given the policies of the Fed, I think if you are waiting for a greater decline to buy, you are going to be waiting a long time.

3   121212   2012 Dec 27, 2:37am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

What trust is left in the system?

Do you trust the chain of ownership?

4   Dan8267 (256/259 = 98% civil)   2012 Dec 31, 2:46am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

Buster says

But I really don't buy the fact that there is no discretionary spending room left in the average american's budget.

You don't have to buy that as that is not my argument. My argument is that discretionary spending isn't nearly enough to support real estate speculation, which is what drove prices up in the first place, or spending more on a house than what it is really worth.

Furthermore, interest rates cannot stay low indefinitely. Such low rates have many cumulative negative effects including deterring investment. When interest rates rise, expect housing prices to plummet simply because people can only afford such and such monthly payments.

5   Dan8267 (256/259 = 98% civil)   2012 Dec 31, 4:30am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

JFP says

The Case-Shiller graph you posted shows 100 as the nominal price level in 1999. What is it that makes 1999 the correct level of pricing for houses?

Here's the full Case-Shiller graph from 1890 to 2010. Unfortunately, our dumb as rocks press doesn't have the basic intelligence to continue plotting along this graph and instead looks at a mere 10-15 year history. I've always detested such short-sighted views.

Anyway, the value 100 in the index is defined as the arbitrary valuation point of the year 1890 which is the earliest data in the index. 100 is not defined as the norm, but simply as what real (not nominal) prices adjusted for quality in the year 1890.

The historical average is actually below 100, but that is due to an unusual and long period where demand was low between WWI and WWII. If we start with the modern, post-WWII period, we can get a sense of what the real fair market level is. It really stands out. The 1960s, 1970s, and 1990s were dominated with relatively flat periods centered around the 110 mark. This mark is also about average for the period from 1945 to 2000, before the incredibly obvious bubble on the graph. The previous buyers and sellers market didn't move much away from 110 and the average always returned to 110.

This is why it is my assessment that 110, not 140, represents the historical norm for housing in modern America. If someone wants to make the case that 140 should be a new historic norm, then there better be a damn good reason for it. If anything, I'd expect a new historic norm to be lower, not higher, as houses are getting cheaper to build (or to print out in the near future) and America's population isn't expanding like it used to and that we've reached Peak Baby.

As such, there is no reason for housing prices to now be 30% higher priced today than during the past two generations. There are certainly reasons for them to be priced lower:

1. Lack of expected population growth.
2. Baby Boomers retiring and downsizing.
3. Millennials moving back in with parents.
4. Women delaying motherhood and having fewer children.
5. Construction costs decreasing.
6. Technology improving.
7. Overbuilding during the bubble.
8. Expectation of higher interest rates and thus lower prices.
9. Massive debt in the Millennial generation.

6   Goran_K (4/4 = 100% civil)   2012 Dec 31, 5:03am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

JFP says

You could make the same arguments about healthcare and college expenses, but they keep increasing also. I think we are in an unprecedented era of monetary manipulation, so I'm not sure we can expect things to ever revert to the "norm."

I think like Dan, many of us are betting on the fact that the FED can only manipulate so far. Seeing as each round of QE has had less effect each successive round, it seems like a safe bet for many of us.

7   Kevin   2012 Dec 31, 5:51am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

I see a few basic arguments supporting housing prices between 20-30% above the previous 'historical norm':

1. The homes are larger and we spend more time in them. Our houses are twice as big as they were prior to 1980. We use them for home theaters, for play areas, and for temporary housing for visiting relatives.

2. The average finish quality of new / remodeled homes has moved to the right of the curve. In 1990, natural stone counters, hardwood floors, and professional grade appliances were considered high-end luxuries. Today they're considered basic finishes.

3. Interest rates really are absurdly low, and I don't see anything to suggest that they'll go significantly higher in the near term.

4. People are just willing to spend more on housing than they would have in the past. With pensions gone and 401(k)s either too confusing or unavailable for many, housing is the last "dumb" retirement planning option available. If you pay off your mortgage while you work, you can sell your home at retirement for a few hundred thousand bucks and live in comfort for the rest of your life (you can even do a reverse mortgage).

5. Inertia. People have an idea of what a thing should cost, and it takes an enormous amount of energy to change that. A guy may be deeply underwater, but if he believes his home is worth X, he isn't going to sell it for less than X unless he has to.

As someone involved in building a new home, I don't see any evidence that building is getting cheaper. Every advance we've made in reducing costs has been offset by something else. We use plywood / OSB instead of solid wood in framing, but we have to now sheath everything for seismic protection. We use MDF for trim but now we have to insulate to R-19 minimum. We use drywall instead of lath and plaster but now we have to use lead-free, low-voc paint that costs twice as much per gallon.

8   121212   2012 Dec 27, 2:36am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

No I am not.

I left California after the doubling and tripping of property prices, while incomes remained stagnant and taxes and gas went up.

9   121212   2012 Dec 27, 2:36am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

The policies of the FED are hurting real estate.

10   121212   2012 Dec 27, 2:43am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

JFP says

Why shouldn't I? People all around me are buying and selling houses with no title problems.

If you say so.

My father-in-law is the VP of Chicago Tittle.

It's a disaster zone.

11   121212   2012 Dec 27, 2:47am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Beau Biden, Delaware Attorney General, Sues Big Banks' Mortgage Registry

Homeowner confusion arose from the fact that MERS assumed title to the mortgage instruments associated with the loans that its member organizations were bundling and selling off as securities. Yet MERS, according to the complaint, failed to ensure proper transfer of the mortgages, leading it to foreclose upon houses without the authority to do so. Homeowners trying to fight off foreclosure were hampered by the convoluted chain of title -- in other words, it wasn't clear who was actually foreclosing on them.

12   121212   2012 Dec 27, 2:47am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

JFP says

Which is significant, how?


13   121212   2012 Dec 27, 2:47am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Are you in Real Estate?

14   121212   2012 Dec 27, 2:52am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

JFP says

That's a problem if you are being foreclosed on, or perhaps if you are buying foreclosed properties. If you are not, it's not an issue.

Not an issue, your blind, you have no idea of the scope and impact this is having on the entire real estate industry.

This impacts "EVERYONE" who owns property.

15   121212   2012 Dec 27, 2:57am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

JFP says

I've followed the MERS story closely, but it clearly hasn't had the impact that a lot of people thought it would have. If it was affecting the real estate market substantially in my area, I would know about it, because my neighbors wouldn't be able to sell their houses. They are all having no trouble doing so. So, why should I care about MERS?

It has been a contributing factor to the $7 Trillion loss real estate has suffered over the past 3 1/2 yrs.

16   zzyzzx (72/72 = 100% civil)   2012 Dec 27, 12:41pm  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation.

Problem with this logic is that house price inflation tracks wage inflation. Therefore adjusted for inflation, a $200,000 in January 2000, the price would be close to $200,000 today!

17   RentingForHalfTheCost   2012 Dec 28, 12:50am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

JFP says

RentingForHalfTheCost says

JFP says

Given the policies of the Fed, I think if you are waiting for a greater decline to buy, you are going to be waiting a long time.

I agree, at least 2 more years and think of all the rent money you will waist in 2 years! Buy now cause people in the BA are only getting richer and smarter.

Is this supposed to be a serious comment?

Yes, run out now and give you money to any owner. They worked hard to keep the house from falling apart and deserve all your money. Give then 100k over asking and don't ask any questions. Then become a slave to the bank and watch as the owners drive off in their new Mercedes. They worked so hard for your money you have nothing to do but smile and wave. God love them, they are the ones that shall inherit the earth.

18   RentingForHalfTheCost   2012 Dec 29, 5:24pm  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Kevin says

Sorry, but if you can afford $1200 a month for a mortgage while saving the $40,000 required for 20% down at 200k, you can afford to save $15000 more.

No sorry needed. Please send the 15K to my account. I am packed for my trip and waiting. ;)

15K is only about 4 times the national savings average. Irrelevant I guess.

19   Dan8267 (256/259 = 98% civil)   2012 Dec 31, 2:42am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Call it Crazy says

Exactly!! Which is why this "housing recovery" this year can't sustain itself.....

What some people call a recovery, others call a bull trap.

20   lostand confused (21/21 = 100% civil)   2012 Dec 31, 2:48am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Even if you have discretionary spending, people will be wary of spending-when you don't know if you will still have your job or will be able to get one if you lose your job-you are not going to spend as much.

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