patrick.net

Look fellows. Here is a chart that includes nominal home prices.

The distinguishing feature is that, until the current downturn, prices NEVER GO DOWN. That is because there is a thing called "inflation". REAL prices DO go down. Nominal prices do not. The current downturn in nominal prices is a singular event, and it would be ridiculous to try to form a general rule on the basis of a single event.

So I ask you, please tell me how it makes any kind of sense, if one is attempting to discern the relationship between interest rates and prices, to look at nominal prices which ONLY GO IN ONE DIRECTION? That's just stupid.

gameisrigged says

I am arguing that interest rates appear to be inversely proportional to housing prices. I made no other claims as to what I “believe”.

Dude--you are all over the place. I stated in a previous post that you shouldn't use inflation adjusted prices and you seemed to disagree. So, I posted why it is correct to use them and you seemed to disagree and posted it. Then when I responded to that post, you claimed that all you were talking about is the correlation between interest rates are real home prices. Whatever.

I still maintain, as I always have, that historically there has been little to no correlation between interest rates and nominal home prices. I can't tell if you agree or disagree with that statement.

gameisrigged says

I don’t understand why you are making this so complicated. Look at the chart I posted. Does it not appear that interest rates are, for the most part, inversely proportional to home prices?

No.

gameisrigged says

The distinguishing feature is that, until the current downturn, prices NEVER GO DOWN

Ray--I know you've been looking for Larry Yun. He may have turned up here....

gameisrigged says

So I ask you, please tell me how it makes any kind of sense, if one is attempting to discern the relationship between interest rates and prices, to look at nominal prices which ONLY GO IN ONE DIRECTION? That’s just stupid

Here's why. A couple of reasons

1. Because many people (not sure if you agree, because you didn't answer my earlier question) believe that as soon as interest rates rise, nominal home prices will fall.

2. Further, if you are considering purchasing a home and doing a rent vs. buy calculation the nominal house price is infinitely more important than the real home prices. When you own, you are protected against housing inflation. Looking only at real prices neglects this.

tatupu70 says

gameisrigged says

I am arguing that interest rates appear to be inversely proportional to housing prices. I made no other claims as to what I “believe”.

Dude–you are all over the place. I stated in a previous post that you shouldn’t use inflation adjusted prices and you seemed to disagree. So, I posted why it is correct to use them and you seemed to disagree and posted it. Then when I responded to that post, you claimed that all you were talking about is the correlation between interest rates are real home prices. Whatever.

I have consistently said the same thing over and over, and you keep bombarding me with non-sequiturs and red herrings. Yeah, *I'm* the one who's all over the place. Suuure......

I still maintain, as I always have, that historically there has been little to no correlation between interest rates and nominal home prices. I can’t tell if you agree or disagree with that statement.

For the umpteenth time, nominal home prices almost never go down. The current downturn in nominal home prices is an aberration. IT MAKES NO SENSE to examine nominal prices if you are trying to determine the relationship between interest rates and home prices. That would be like jumping out of an airplane with two balloons in your hands and trying to determine which balloon has more helium in it. There's nothing to agree or disagree with, because your comparison makes no sense.

tatupu70 says

gameisrigged says

I don’t understand why you are making this so complicated. Look at the chart I posted. Does it not appear that interest rates are, for the most part, inversely proportional to home prices?

No.

I disagree.

gameisrigged says

The distinguishing feature is that, until the current downturn, prices NEVER GO DOWN

Ray–I know you’ve been looking for Larry Yun. He may have turned up here….

You know, I've been wondering if you are mentally retarded. Now I'm pretty sure you are. Look at the chart of nominal home prices I posted. Before, the current downturn, please tell me where nominal prices ever go down on that chart other than tiny blips lasting a month or two. Oh, they don't? Duh.

gameisrigged says

So I ask you, please tell me how it makes any kind of sense, if one is attempting to discern the relationship between interest rates and prices, to look at nominal prices which ONLY GO IN ONE DIRECTION? That’s just stupid

Here’s why. A couple of reasons
1. Because many people (not sure if you agree, because you didn’t answer my earlier question) believe that as soon as interest rates rise, nominal home prices will fall.
2. Further, if you are considering purchasing a home and doing a rent vs. buy calculation the nominal house price is infinitely more important than the real home prices. When you own, you are protected against housing inflation. Looking only at real prices neglects this.

Dude, you are seriously obtuse as hell. You obviously are never going to understand what I am telling you, so maybe you should just forget about it.

OK--I give. Either I'm not doing a good job explaining my point or you're just not listening. In any event, it's no use to continue rehashing the same stuff...

Cheers.

tatupu70 says

I still maintain, as I always have, that historically there has been little to no correlation between interest rates and nominal home prices. I can’t tell if you agree or disagree with that statement.

Given that rate changes over a very long period of time will make changes in nominal prices obfuscated by inflation, your observation is pointless.

klarek says

Given that rate changes over a very long period of time will make changes in nominal prices obfuscated by inflation, your observation is pointless

My observation is pointless??? That is my point! That home prices depend on wage inflation and that interest rate changes are pretty much meaningless. And that all of the posters on here who continue to write that when mortgage rates rise, prices are sure to fall are wrong.

tatupu70 says

My observation is pointless??? That is my point! That home prices depend on wage inflation and that interest rate changes are pretty much meaningless. And that all of the posters on here who continue to write that when mortgage rates rise, prices are sure to fall are wrong.

They're not necessarily wrong. If rates rise significantly, the downward pressure on housing prices could be greater than the upward pressure from GDP/inflation growth. Even if not, in real dollars those houses will drop in price. Whether it's nominal or real, the impact will be the same. I was pointing out that by looking at it only from the view of nominal dollars and thus concluding that changes in rates don't effect prices (or so you seem to be implying) is flatly wrong.

klarek says

If rates rise significantly, the downward pressure on housing prices could be greater than the upward pressure from GDP/inflation growth.

Yes, and if aliens land on earth tomorrow and hand out free jelly beans to all, then housing prices might rise. OK--once more. If you believe history is any guide, then your above statement has been shown to be utterly false.

klarek says

I was pointing out that by looking at it only from the view of nominal dollars and thus concluding that changes in rates don’t effect prices (or so you seem to be implying) is flatly wrong.

First off--interest rates have very weak to no correlation with even real housing prices. And b--why do you care what real housing prices do? When you make a rent vs. buy decision, you do so based on nominal prices, not real prices.

tatupu70 says

My observation is pointless??? That is my point! That home prices depend on wage inflation and that interest rate changes are pretty much meaningless. And that all of the posters on here who continue to write that when mortgage rates rise, prices are sure to fall are wrong.

I beginning to believe you may be right Tatu... But only because i don't see interest rates rising anytime in the next 5 years. I'm confident the economy is going to stagger along with high unemployment near 10% for years to come... The government can't raise interest rates in that environment. By the time the government allows interest rates to rise at any sort of meaningful rate... The economy will be on to its next boom... By then I'm guessing everyone will be making money hand over fist in solar energy or green jobs. It'll just take some scientific break throughs between now and then to spur it.

RE: 1998 prices and where we stop going down on this next drop.

Those 1998 homes were in GREAT shape and sold for a fair price, with full disclosure rules and were move in ready. They are now coming back as REO's, no disclosures, and a ton of Tiajuana Special remodel work, illegal additions, and ZERO maintenance. The nice window coverings and appliances have all been removed. THe garages and driveways all have big oil stains. The floors and gutters and roofs are all in need of repair. It is my belief that this is why the prices are going to go below the market figures, because 1998's house was in much better shape so it had REAL value. This is just my hunch. The actual value of a home will be 1998 .... and needs to be adjusted up or down from there for what has been done to it in the last 10 years that adds actual value. A nice pool or shop, adds value. A room where the garage used to be with 1/2 of a kitchen cabenit set stuffed in someplace, all done without permits, takes away value. Guess which one you see more of out in the central valley?

tatupu70 says

Yes, and if aliens land on earth tomorrow and hand out free jelly beans to all, then housing prices might rise. OK–once more. If you believe history is any guide, then your above statement has been shown to be utterly false.

If history were any guide, we would not have seen home prices drop like we had in the past four years. Great counter-argument.

tatupu70 says

First off–interest rates have very weak to no correlation with even real housing prices. And b–why do you care what real housing prices do? When you make a rent vs. buy decision, you do so based on nominal prices, not real prices.

That is like asking why we measure anything in terms of real or nominal dollars. Because it's the time value of money. It's like making $50k today and in 20 years when you are making only $60k (while inflation over that time has gone up 40%) you think you're actually making more than you were before. It's a relative indicator. You're either missing the point by miles, or deliberately trying to avoid it.

klarek says

That is like asking why we measure anything in terms of real or nominal dollars. Because it’s the time value of money. It’s like making $50k today and in 20 years when you are making only $60k (while inflation over that time has gone up 40%) you think you’re actually making more than you were before. It’s a relative indicator. You’re either missing the point by miles, or deliberately trying to avoid it.

I'm neither missing the point nor avoiding it. Unless you are evaluating a house purchase solely as an investment based on appreciation--which would be very stupid--then I don't see what the point of using inflation adjusted prices is. If you buy a house as an investment, you do so because you can cash flow based on rent--not because you expect the appreciation to outperform other investments.

And if you do a rent vs. buy calculation you'd damn well better include inflation in your numbers. Because that's one of the main advantages of owning-- your payment stays the same while inflation increases rent, wages, and the home value.