patrick.net

The value is largely set by how much loan a household can qualify for.

>1973 through 2006

1973 - 1995 saw women join the workforce:

http://research.stlouisfed.org/fred2/series/USALFPWNA

and produce the "two-income trap" since loans were made based on the two incomes starting in 1970 or around then.

Interest rates peaked in the 1970s as the Fed was trying to kill the Baby Boom's ability to over-borrow money:

http://research.stlouisfed.org/fred2/series/MORTGAGE30US

but that graph shows that from 1980-now interest rates have been drifting down. This increased buying power, especially in the 2002-2004 period, before actual suicide loans (negative-am / pick-a-pay) became widespread.

2000-2006 was also a period of over-leveraging:

http://research.stlouisfed.org/fred2/series/TDSP

as people started gambling on future home appreciation bailing them out.

The reason there is a crisis now is simply due to the fact that so much of the economy 2002-2007 was predicated on rising home values and the money thrown off from the $1T+ debt flow from housing, both in REIC employment, home equity extraction, and the general wealth effect of people thinking their phantom equity was money-good and thus savings.

Here's a graph of the annual debt take-on in the mortgage sector:

http://research.stlouisfed.org/fred2/graph/?g=1xP

That $1T/yr flow was very nice while it lasted. It powered everything else, and after it went away in 2007-2008, so did the Bush Economy.

Home valuations are also driven by increased take-home pay, so the Bush tax cuts of 2001-2003 also were a mild inducement towards higher home prices.

Intentional inflation through monetary policy. The price of a US dollar vs an ounce of gold will show you too.

The price of gold doesn't mean anything to the price of a home since operating gold mines are few and far between these days.

Inflation in necessities like oil can lead to deflation in housing, actually.

A factory wage in China is still $10 a day, so a weaker dollar (against at least the yuan) is in the national interest.

Unless we are happy with 15% U-6. Perhaps we are.

Everyone who is in real estate business have interest in as high value of properties as possible.
Do you know not that long ago mortgage payments were work like today’s credit cards payments?
Interest was computed every month based on remaining principal. Monthly payment was successfully going down every month. Then new idea was to make houses more affordable, hence more expensive. Under new payments plan, your payment is unchanged throughout 360 months, but in first 5 years, portion going to principal is minimal. Since people have tendency to change houses frequently, guess who makes the most of the money. RE brokers also adds 6% to every sales price. Banks developed 5ARM, 3ARM, 1ARM, 6mo.ARM, Int.Only, all for a reason to just make people qualified for more expensive house.

Understand one thing: "value" and "price" are not synonymous. The value of housing did not rise when the prices tripled during the housing bubble.

The price is determined by what the biggest fool CAN and WILL pay. Usually the biggest fool is willing to pay more than he can. The mortgage-backed-security-exchange fraud allowed the biggest fools to pay what they were willing to.

The value is determined by what a product or service actually fulfills. This may be somewhat subjective, but statistically it's measurable and calculable. The value is what a rational, knowledge buyer without pressure would pay.

Stability will occur when the what the fools can pay is less than what the rational buyers will pay and the sellers accept this fact.

Dan8267 says

Stability will occur when the what the fools can pay is less than what the rational buyers will pay and the sellers accept this fact.

Hehe. I am waiting for that but the reality is that our govt. is behind fools. :)

this is not going to end well.

Dan8267 says

Stability will occur when the what the fools can pay is less than what the rational buyers will pay and the sellers accept this fact.

Thats going to be a while.

Troy says

The price of gold doesn't mean anything to the price of a home since operating gold mines are few and far between these days.

Well it means something when you can't print gold. 100 ounces of gold historically has bought you a median-sized home in the US. I believe we have approached that or even crossed it now.

You can't make money ultra-cheap and not face the consequences.

austrian_man says

You can't make money ultra-cheap and not face the consequences.

それを日本人に教えて。

Inflation is a very uneven phenomenon. If only rich people have tons of liquidity then only the things rich people buy will see inflation.

Rich people don't consume that much oil, which is why the price of oil is slow to react to the money dumped into the economy since 2007.

A loose correlation exists:

http://research.stlouisfed.org/fred2/graph/?g=1yr

but I think this is due to rising global demand (eg. China).

Demand has been very flat here in the US since 2007:

austrian_man says

It is worth noting there was a mini-housing bubble around 86-ish time frame but not as bad as 2006.

Yes, certainly was. Prices went up based on booming economy and rising incomes. We (here in CA) took a one two punch, not related to RE as a bubble, which drove prices lower. The past 12-13 years was certainly a bubble.

Troy says

"two-income trap"

1973 women were earning % 73 of what men were earning. So 1972 you qualify for a $100,000 mortgage 1973 you qualify for a 173,000 mortgage. That was the fuse. From 1974 to 1980 everybody's homes DOUBLED in value. Then, 1981 Real Property sales prices fell nation wide %17. COINCIDENCE ? The next few years were depressing. Thank goodness for Steve Jobs, Wozniak & the other geek. Lots of People paid thousands for a couple megabytes of memory. Many were still reeling from the recent doubling of real estate values and they were prime with all that cash being stirred and dove into Real Estate investments without justification of it's true value. IBM and many other companies subsidized the higher home prices just to bring in new talent. That began the explosion. Well IT'S OVER NOW, someone needs to tell the banks (politicians etc.) the value of that shadow inventory ain't comin back ! STOP giving our tax money to banks that made BAD business decisions !!!

Buyers make value. NO BUYERS - NO VALUE.