U.S. HOUSING PRICES STILL MORE EXPENSIVE THAN ANY POINT IN LAST 120 YEARS
14 June 2010 by Cullen Roche
37 Comments
Today’s chart of the day comes to us courtesy of Robert Shiller at Yale University. The following is Shiller’s famous inflation adjusted home price index. Interestingly, despite a 30%+ decline from peak to trough, housing prices are still more expensive than at any other point in the last 120 years when you exclude the recent bubble era . Some say housing prices have bottomed. Not unless it’s truly “different this time”.
the northeast might be skewing this nationaly……can’t find my info but it was wayyyy up compared to rest of country…..and it is the largest population area…..
From Anecdotal Evidence I’ve known this. Coastal California is VERY expensive. I’ve been looking for a home and rental property from the Bay Area (Oakland-San Francisco) to Los Angeles-Long Beach for 4 months. If a middle income family wants to purchase in an area that doesn’t have too much crime, and maybe you can send your kids to a half-way decent public school look to pay minimum 500k for a 2/1 if you are lucky. I understand the economics of San Francisco and the value of land there, but L.A.? It’s an uphill battle to get a bank approval as well, but I suppose we should all be more thankful that it takes more than being able to fog a mirror to get a loan.
I know personally 2 friends walking away from homes in Oakland, CA right now. Both households have at least one person employed.
We can expect this housing downturn to be a slow process like all the others.
housing prices are still more expensive than at any other point in the last 120 years when you exclude the recent bubble era
There is a lot more real estate leverage recently than there has been during most of the last 120 years. Real estate is ultimately a credit-driven animal, and the ability to lever up makes all the difference in what people are willing to pay for it.
If we are to have fundamentally lower real estate prices, then we would need to eliminate exotic home mortgage products (i.e. ban HELOC’s entirely) and reinstitute standard uniformly high down payments, i.e. 20%, for most buyers. But those things aren’t going to happen.
Most of the market likely bottomed last year, and any short-run subsequent dips should be minor. When securitization returns as a force to the market, there will be another bubble. The drivers that created the last bubble have not been addressed and aren’t going to be addressed. Deja vu all over again.
“If we are to have fundamentally lower real estate prices, then we would need to eliminate exotic home mortgage products (i.e. ban HELOC’s entirely) and reinstitute standard uniformly high down payments, i.e. 20%, for most buyers. But those things aren’t going to happen. ” Angry MBA
No, how about we bailout the existing debt slaves, compensate the savers too and at the same time set bank reserve requirements to 100% ? That way, the banks would have plenty of real money to lend out. Deflation worries? Then let’s be generous in the bailout of the debt slaves and compensation of savers. The Bible recommends a minimum two fold compensation for theft. I think I saw four fold somewhere too.
No, how about we bailout the existing debt slaves, compensate the savers too and at the same time set bank reserve requirements to 100% ? That way, the banks would have plenty of real money to lend out.
The odds of reserve requirements going to 100% are 0%, and the odds of banks paying above-market rates on savings accounts are not much higher. If we are going to discuss pragmatic capitalism, then I’d prefer to focus on likely scenarios. Neither of those is likely.
“If we are going to discuss pragmatic capitalism, then I’d prefer to focus on likely scenarios. Neither of those is likely.” Angry MBA
I’m sure debt forgiveness may have seemed very pragmatic to aristocrats on the way to the guillotine. Or what about the aristocrats who lost sons in WWII caused by the Great Depression? How much heat will it take for some to see the light?
Government backed fractional reserve lending in a government enforced monopoly money supply is THEFT both by inflation and deflation. That the facts, friend. Now if you think that a sound economy can be built on that foundation then I feel sorry for you both as an economist and as a human being.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.” attributed to Thomas Jefferson.
I’ll make two pragmatic predictions:
1. The world isn’t going to end
2. You’re going to be very disappointed when it doesn’t.
“I’ll make two pragmatic predictions:
1. The world isn’t going to end” Angry MBA
Do you guys have a formula that tells you how much you can loot the debt slaves before they revolt? Is keeping the population ignorant part of the plan? Will you enjoy living in an armed compound with body guards? Are you proud of the world you are creating?
“2. You’re going to be very disappointed when it doesn’t.” Angry MBA
My world has already ended. I won’t even fly if I can help it because of the ridiculous security precautions. Things will get worse in your world, I predict, until you see the light.
Everyone’s world ends when they die. Are you storing up wealth for the next one? Will fractional reserve lending in a government enforced monopoly money supply be allowed there?
I suggest you read the Old Testament with regard to oppression of the poor. It might give you new perspective.
This was an excellent response to angry MBA, who apparently has his proverbial head in the sand.
Funny, because there isn’t a single pragmatic point that Mr. Beard has made in this post (or for that matter, the vast majority of his other ones.)
There are many economic theories out there, but End Timer Christianity doesn’t count as one of them. I know that you guys are seeking some sort of outlet where you can vent, but personally, I prefer a fact-based, pragmatic analysis to a panic-driven religious apocalyptic rant.
“… but personally, I prefer a fact-based, pragmatic analysis to a panic-driven religious apocalyptic rant.” Angry MBA
It’s funny that an MBA has no appreciation of how pragmatic “Thou Shalt not steal” is.
I suppose if I really put my mind to it I could devise a spreadsheet simulation or properly learn differential equations and show you the error of your ways in hard mathematics. In fact, I have simulated a new form of banking using gold and common stock as a thought experiment. It was devilishly hard to avoid fractional reserves and breach of contract. But I persisted because I just knew that ethical banking was possible.
And now I’ll tell you what took me a long time to figure out using the Bible and Excel: common stock is the ideal form of money.
“There are many economic theories out there, but End Timer Christianity doesn’t count as one of them.” Angry MBA
Fractional reserve lending has confused the heck out of economists; no wonder then that there are many economic theories. However liberty allows any number of economic theories to compete on a level playing field. What say we have one?
Do you think that the lack of complete reversion to the mean (say the level 110) could be explained by the fact that the inflation calculation methodology changed in the 1980′s and again in the 90′s? I haven’t been able to find out how this nominal series has been deflated, but I’m guessing that the new methodology might be applied in the last part of the series only. Since this new methodology is biased towards producing lower numbers, it might explain why this chart still shows a bubble.
Any thoughts?
TPC,
Does Shiller’s real home prices take the carrying cost (mortgage rates and property taxes) into account or is it simply home purchase prices adjusted for inflation.
Does Shiller’s real home prices take the carrying cost (mortgage rates and property taxes) into account
You can find the methodology on S&P’s website, but the answer to that is no, it is just inflation-adjusted prices. The pricing data is based upon matched pairs — the index is meant to reflect the price change of individual properties.
However, the CS 10 dates back to 1987 and the CS 20 began in 2000, so I don’t know how he gets his pre-87 data or how he adjusts for it. I’m guessing that it’s a federal source, such as the Census.
The graph is completely useless.
It doesn’t consider interest rates trend. It doesn’t consider nominal income per capita growth rate. Both are more closely related to housing price than inflation.
Inflation and income are highly correlated by definition. Interest rates don’t substantially impact housing demand over the long-term. Japan showed us this.
I think the graph is pertinent because it shows us that housing barely outperforms the rate of inflation. That should correct. especially if we continue to see low levels of inflation as we are now.
Housing has a long way to go down. USA will be just like Japan housing will slowly go down for the next 10 years or more. Im Miami they are still asking $500,000 to $700,000 for a 3 bedroom house 2 bath house the averge family income here is about $65,000 a year…..
“especially if we continue to see low levels of inflation as we are now.”
Have you been shopping lately? Price of services is going up (gas, electricity, rent, etc) and food is going up too. If that is not inflation I do not know what is. If you quote useless and highly manipulated government numbers (CPI) I’ll just call you nuts for believing it. Last time I checked, the “volatile” items on their list are needed to live or get to work. There is actually some government agency that no one listens too that compares apples to apples and oranges to oranges each month and it shows inflation over 8% for the last year. Now if I hadn’t cooked my puny brain on a roof in the sun all day I might have a chance to remember it
I’ve heard all the arguments. CPI is cooked (actually, they explain it all these misconceptions in great detail on their website). Gold = inflation. Yada yada. but commodity prices are down 65% from their peak. Gas prices haven’t budged in years. The money supply keeps declining. Bond yields keep tanking. Oil prices are half their all-time high. The dollar is surging.
Where is all this inflation? The inflationists have resorted to conspiracy theories and fake websites that promote gold. Where are the real facts that back this inflation story?
Here’s that site. Now can we stop talking about how the CPI is crooked? http://www.bls.gov/cpi/cpiqa.htm
I’m curious to know exactly what kind of wingnut gives TPC a one-star rating for providing a credible link to BLS data. The conspiracy nuts must be working overtime today…
The solution to the economy AND the real-estate market is quite simple – return to honest pricing. What is “honest pricing”? Simple. This is where ZERO money is created and loaned to anyone for a home mortgage. Let everyone pay cash, or borrow money UP TO BUT NOT EXCEEDING the total savings deposits in the country (whatever country you want “honest pricing” in). I performed the most careful computation I could, and ended up with an estimate that houses would cost 1/8 to 1/12 of their current prices in an “honest pricing” market, and other products would cost about 1/5 of their current prices.
Consider the consequences to the economy and personal happiness in this scenario! This means if you save 8% to 12% of the CURRENT price of a home, you could BUY THE HOME OUTRIGHT. Then you have [fill-in-the-blank] thousands of dollars of EXTRA SPENDING MONEY EVERY MONTH… for the rest of your life… that you would have funneled into the ganster banksters instead. Not only that, but every dollar of that extra money you have every month buys FIVE TIMES as much goodies!
Yes, this sounds insane! That’s what I thought when I first came up with these estimates, even when I tried three different approaches. But then I realized the following facts:
Before the recent “debt-crazed” decades, one parent working was sufficient to live reasonable well WITHOUT credit-card debt, car-loan debt, refinancing the house every 3~5 years, etc. So there’s a factor of about 3.
Add to this the extraordinary efficiencies gained in many aspects of life as a consequence of digital electronics and software in the past 30 years. So there’s another factor of 2 or so. Add to this the absense of interest expenses. There’s another factor of 20% or so.
Add to this the massive increase in prices DIRECTLY caused by the hyper-insane levels of debt and government intrusions into the previously semi-free marketplace. For example, medical expenses driven to the moon by endless government regulations, requirements, welfare programs and decrees. For example, college education expenses driven up 100 to 1000 times higher than 30 years ago, almost ENTIRELY due to totally fraudulant government sponsored “student loan” scams. The only reason loans are “necessary” today is because these stupid programs have made it possible for these institutions to charge just about any price for admission.
I have several other obvious factors that also multiply with the above, and make it obvious to me, and any obvious person how the entire country and western world has been TOTALLY DESTROYED by the international central gangster banksters and their agents (governments and media apologists). After working through the numbers many, many times, I now realize that my opening claims ARE TRUE. Just imagine what life would be like in a NON-DEBT based world in which “honest pricing” is the norm. Do you understand why 50 to 150 years ago WERE the “good old days” in so many ways, despite the obvious lack of luxuries? I do.
@honestann,
What you are advocating is 100% reserve banking and I agree that it would be an huge improvement over what we have today. Very good comment BTW. Thanks.
However, those who advocate new money creation have a point too. For instance, how shall the interest be paid on debt if the money supply is not allowed to grow? The question is then who gets to create the money and how much. The answer to me is obvious: Anyone should be able to create their own private money and in whatever amounts they desire. Of course anyone should be free to refuse that money too. There should be no legal tender laws except for government monies and in that case government money should only be legal tender for government debts.
@Beard: Sure, people should be free to “create their own money”… by mining gold, silver, platinum, palladium or any other metal – and also by growing food, assembling products from raw materials, etc.
Get my point? The current notion of “money” is a pure, unadulterated SCAM. Today, most people believe totally insane fantasies are REAL – and rarely even distinguish between “real” and “fictional”.
Several decades ago, most people were much more “grounded” (understood what is real and what is BS), because they were farmers or producers of physical goods.
My point is, before recently, people didn’t really believe “money” the way people do today. Back then, they NEVER purchased anything, they only TRADED their goods for someone elses goods. Yes, it was extremely convenient to break every trade into two trades – trade your eggs for gold, then trade the gold for ANY goods you needed. But the point is, every trade was REAL GOODs for REAL GOODs — no fake-fiat-fantasy-fraudulant-conterfeit toilet-paper involved. The only reason those folks were willing to trade (to a limited degree) “dollars” is – they were literally “a bearers receipt for gold on deposit”… until the government STOLE ALL PRIVATE GOLD in the 1930s.
The one and only KEY POINT is this. ALL trades must be REAL GOODs for REAL GOODs. No standins, no metaphors, no fantasy, no fuzzy thinking, NO MORE PAPER RECEIPTS… EVER. That is the only solution for the world economy, and the only alternative is global tyranny of the predator-elites over all mankind.
BTW, that solves the supposed “problem” you mention, since people can mine gold, silver, platinum and any other REAL GOOD to add to the “trade supply”. If the quantity of gold happened to be “too small”, people would gradually learn to accept other REAL GOODs (like silver and platinum, perhaps).
What would happen to wages in your scenario? Wouldn’t they have to go down as well?
My analysis was formulated in terms of REAL VALUE, namely REAL GOODs, not some fake fiat fantasy arbitrary fraudulant manipulated counterfeit toilet paper. If you read my other reply (to “beard”), you’ll see part of my answer to your question. When people ONLY trade “real goods” for “real goods”, issues like yours are essentially irrelevant. Why? Because most REAL GOODs tend to FALL in “price” (or “value”) rather than rise. Why? Because honest, productive humans learn to be more and more efficient as time passes.
The international central gangster banksters have known this for centuries! This is their SCAM — to STEAL the real goods from every productive human. Their scam has been greatly aided by the never-ending increase in efficiency of honest, productive humans. How? Because people have ideas like you… that somehow ALL OF US SHOULD NOT GET RICHER year after year. Fact is, due to the natural increases in efficiency I mentioned, YOUR BUYING POWER WILL NATURALLY INCREASE FOR YOUR ENTIRE LIFE… as measured in REAL GOODs. If the system doesn’t HAVE any “non-real goods” AKA “fiat money”, your EFFECTIVE wages get higher and higher and higher… even if YOU do not become more efficient like the average human (because THEY get more efficient, and charge you less). If you AND they get more efficient, your gains are multiplied by theirs – and vice versa.
These financial terrorists have DESTROYED THE WORLD, have DESTROYED HUMANITY via their predatory actions. And like most predators, they are massively deceitful. They “hide in the grass” and “blend in” to avoid detection. But these predators are vastly more capable than lions and tigers and panthers, for they have the most crafty minds on the planet.
And they know something else. They know that:
DESTRUCTION is metaphysically VASTLY more potent than PRODUCTION.
How much time, skill, effort, knowledge and resources does it take to build a nice comfortable home? That is production.
How much time, skill, effort, knowledge and resources does it take to destroy that nice comfortable home? A book of matches (free), about 1 minute of time, almost zero effort, almost zero knowledge, and a couple bucks worth of gasoline. That is destruction.
Few people bothered to observe and infer and formulate this simple, fundamental aspect of reality. But the predators know this very, very well. They know that the MERE IMPLICATION that they will destroy you and/or your property is more than sufficient to convince you to hand over 50%, 60%, 75%, 80%, 90% or more of your time, effort and production TO THEM. That’s called “protection money” AKA “involuntary taxation, fees and laws and regulations”.
The coastal areas will continue to decline and is still to high, the interior regions have bottomed. I am now competing with other investors in CO with multiple offers in CO. So if are looking in CA stop wasting your time and move.
Home prices in the aggregate are of little value to solve any of the economic problems which we have wrought.
The hubris of Americans have led us down this dark path. The equivalent of economic “Manifest Destiny.” Perhaps I should say we are just “stupid.”
Why would a country with such diverse interests and thousands of miles separating us, all the regional and social differences that divide us, think that the simplistic notion of a “common language” would merit a common currency. As Europe circles the drain, we should ask ourselves some tough questions.
The irony is that not only aren’t serious minds being called into the discussion on how to stem the tide of the deflation ( debt destruction), call it what it is, but the way it is being played out is what got us here in the first place. To wit:
The intelligentsia of the coasts, academic, financial and political, keep their aim focused on how the “accommodating losers” of the country’s interior can be ignored. No attempts at capital ( and hence job ) creation where people actually know how to make things. How about some sacrifice at the plutocrat level?
The only chart of any importance right now is a “timeline”. Think LATE ROME!
This is how it plays out; true story. I’m 50. BA Finance 1985. Worked in schooled profession for 7 years at a major company, left, built a similar type business from scratch, and sold it 9 years later. I had the cash, so I finally was able to do what I loved; restore old homes.
I was considered one of the best in Baltimore, where I was doing the restorations. I mainly worked alone, used the best materials, and turned over the best quality home available in the city.
In 2005, what I perceived to be insanity arrived in the area I was working. Investors from around the country would arrive to bid on properties that were being auctioned. The going price would be upwards from $150,000, on a property similar to the ones I purchased for no more than $21,000. I completed the last renovation in August 2005.
Keep in mind that I worked since I was 9 years old. I paid for college working summer jobs, and nights during semesters. Always one to play it close to the vest, I decided to shift my attention to home renovations. As a licensed contractor, with an extensive portfolio, I began doing work for others; club basements, additions, garages, etc.
After the shift to residential construction, the wheels began to come off around June 2007; with 4 contract cancellations in 2 weeks! That was actually a good month! The business just disintegrated from there. I began 2006 with 14 excellent Tradesmen; Carpenters, Masons, Equipment Operators. September 2008, I had 3 remaining. My business was off almost 60%. Spring 2009 never picked up, and as painful as it was, I had to layoff my 3 remaining friends.
The true anger that all Americans harbor is that we are all here through NO FAULT OF OUR OWN! We could understand if it was something ‘WE’ did to cause our situation, but we didn’t. And, that is just unconscionable!
With the business declining over 3 years, and using savings to keep employees, and meet financial obligations, you burn through your savings. The day after Thanksgiving -2009, I received my 45 day notice from the bank. If you’re not familiar with the 45 day notice, that’s the official ‘Federal Law’ notice that tells you they are going to kick you out of your house in 45 days.
Now, me personally, I didn’t abuse credit, never refinanced, and in 2006, estimated the equity in my house to be over $600,000. Forget a workout with the bank if you have any equity! Simply isn’t going to happen. The turkey vultures see an easy meal ticket, and they are going to take it! They are a spineless, cowardly religion; hiding, operating, maneuvering behind the protection of the laws that they wrote! How convenient; this cult produces nothing, yet as you can see to date, since the collapse in 2008; nothing materially has changed in regard to how they operate; business as usual still prevails.
Fortunately, I was able to find a buyer, and sell my house, and was able to move on with a little less than half of the equity I had in 2006. I realize now that I was fortunate; able to limp away, possibly heal, and maybe fight again.
The bank wouldn’t offer a crumb of compassion. The settlement occurred the day before the auction was scheduled. To make a horrific situation worse; the buyers were swine. My family and I had been branded with the scarlet letter; deadbeats, not trustworthy, demons, that if left unsupervised would destroy the house. So, where we had 7 days to move, the buyers stated on the morning of settlement that we had to be out that day, or they wouldn’t settle!
25 years of home ownership and I didn’t even have a place to move our things to; not to mention 10 years of accumulation in this house, spread over 4500 square feet! Frantic phone calls, and a compassionate landlord, we secured a spot to land on. Three 15 hour days, with constant supervision of the new owners, and we were out! Oh, but the way, the new owners were ‘Federal Workers’, with daddy’s money! More pathetic NON-Producer! Karma is real. The house they thought they stole is down 12% in value from their purchase price, and they have yet to sell their house that has been on the market for 290+ days, and based on current prices in the area; is $150,000 over priced!
The point to this rant, is that I think we have to produce some things. After WWII the US snapped back quickly, because we made things. Making things is owned by the middle-class; without making things, I don’t think there can be a middle class. I don’t think that this current government realizes the importance of having a middle class. What is being experienced now is just 9.7% of the middle class being shifted to ‘lower class’, and the devastating effects this is having. Beginning in the Fall 2010 the 2.2 million middle class hired for the Census, will join, or rejoin the lower class again. If just 10% unemployment can wreak this amount of chaos on consumer spending, which is a pathetic 70% of our total GDP, what will 12 – 14% do?
So, the casino has now shifted to commodities, and markets. Not that it wasn’t already there; it has just proliferated, with housing removed. With the current state of global economies, no amount of spin can justify where the S&P 500 is now, housing never had a 75% annual increase! That is because the markets are disconnected from what used to be normality. Proof is what they now refer to as ‘Flash Crashes’, hyper trading, and whatever other insane tactics are employed. The fact is that markets no longer represent the true underling values of the companies they are comprised of; they’re only representative of speculative values based on day to day events. How can you grow a solid economy based on that type of activity? The cataclysmic frauds and errors made in the private sector, perpetrated in their pursuit thereof, now translate into the tsunami of debt added to the federal balance sheet.
Anyone with an interest in the current crisis knows that these artificially low interest rates must end. Rates must rise, or the currency will collapse. We are in uncharted territory, as with many other nations. It is unproven that 8-10% of GDP for debt service is sustainable. It is evident that it is not; with 9.7% unemployment. There must be job creation; we must focus on trying to produce something. The Gulf crisis opens the door to really push for GREEN AMERICAN JOB creation; let’s see how that goes!
All this brings us back to housing. Housing is really very simple. The same 10% that was stupid enough to get unemployed, me included, are still unemployed. So, whatever destruction we did to housing, is still there. The partially employed, clinging on with the help of any remaining savings, will eventually go under; evidenced by the number of new foreclosure filings. Those that are upside-down will realize that it is not financially wise to keep paying on a property that may take 10 – 15 years to break even on, yet cost $10’s of thousands to gain $0.00 in equity! The smart will walk.
So, what we have going forward is Trillions in evaporated imaginary equity. Existing homes currently for sale nationwide estimated at 10 – 12 months inventory; by the way, the numbers they use to estimate the inventory being chewed up, is housing consumption monthly averages in a good economy. And, we have that illusive shadow inventory. So, we have houses all around for everyone; well into 2013. The workforce is estimated to be roughly 156,000,000. With only 15,600,000 unemployed, we alone were able to wreak all this havoc! There is nothing on the horizon that will put these hard working individuals back to work. I believe there has been a paradigm shift, which will ultimately end in a large percentage of those individuals being permanently displaced, unless they are trained and educated to perform in other directions from which they were displaced.
Shiller’s chart is scary, in that markets always normalize. The 40 point discrepancy he shows until we return to normalcy will be very painful, unless we quickly realize the error of our ways, and begin to head in a direction of sustainable job growth. Jobs in which there are value added activities; that’s not cell phone service, and internet service providers, but a return to the basics which have all been eliminated from our GDP, which at one time made us great. Things like textiles, steel, autos. I know it sounds crazy, but if structured properly, could become economically viable again. Those industries would eventually attract the talent to propel sustainable employment. Everyone thinks that because China pays slave labor wages of $7.00 a week, that there is no way for the US to compete with an economy that has destroyed the global manufacturing economy. That simply is not true. What determines if a product is viable is what you can sell it for. Although Chinese workers are paid $7.00 a week, that same pair of pants cost more now to purchase in the US, than it did in the 80’s when the shift to off shore manufacturing started. Sure the margins are reduced, but there are a lot of middle men that could be unemployed, and moved to the lower class, as they are the problem; they produce NOTHING! They are only responsible for skimming huge profits, on the backs of slave labor. Why not eliminate them, and build an economy?
We must start somewhere, and yes it will not be jobs that will allow you to retire in 5 years, but they will be sustainable, they will create a middle class again, and they will begin to help dig this nation out of this quagmire. This nation has the intelligence, talent, and resources to compete with the China’s of the world. It’s up to the American worker to decide if they will become part of the middle class, or succumb to an eventual subsistence and become a member of the low class. By no means do I attempt to slight the lower class; I only make a reference, in that you have to be included in a class; regardless. If not the in middle, you could have only changed to a class in one of two directions. We all can’t be bankers, or Iphone engineers.
Sorry “How It Works” but I am not too impressed. The financial system that you worked in bit you in the butt (yes, there is karma) and you think the solution is just higher interest rates with the current system?
“It’s up to the American worker to decide if they will become part of the middle class, or succumb to an eventual subsistence and become a member of the low class. ” How It Works
Work harder and smarter you debt slaves!
“Now, me personally, I didn’t abuse credit, …” How It Works
You mean you only borrowed what you thought you needed from the counterfeiting cartel?
Look. You sound like a hard worker and deserving of success. Let Angry MBA attack your character if he dares to. But please don’t offer platitudes that any hypocritical banker might mouth. I would think you should know better by now.
The solution is a bailout of everyone with new legal tender fiat to replace the credit money in our economy followed by fundamental liberty in money creation, usage, and acceptance. Capital will move to this country again when we allow genuine capitalism. Fascism just does not cut it anymore.
Regards.
This popular Case-Shiller chart is being used as gospel by nearly everyone, yet the data is corrupt and cannot be correct. People should avoid making conclusions based on the Case-Shiller index.
How do I know? Just make some calculations based on the index. A decent house with 7 rooms and a nice lot generally sold in 1940 for around $4000. I’ve checked numerous vintage newspaper ads across the country to verify this. According to Case-Shiller, this home should sell for $6000 real dollars in the year 2000.
Applying inflation to $6000, you get an inflation adjusted price of around $73,000. for a typical 1940′s home with 7 rooms and a nice lot.
While this price might work in Detroit, in most of the country this house is selling for $150,000 to $300,000 meaning the Case-Shiller index is inaccurate by 200-400%! This is not a small error. Not only do the Case-Shiller numbers fail on anecdotal examples, they are RADICALLY different from price appreciation reported by the Census and other sources.
I’m very sad to see so many people buying the CS index without question. It’s bad science from which no conclusions can be drawn.
I think you boys have lived in fantasyland too long. It is over this country is going to have to lower its expectations, 43,000,000 on food stamps, jobs going away, and you nimrods are actually believe the bottom is in for the real estate market. Soon only the inbreds will reside in California where “image” for the “wanna bees” is the top priority. The State is bankrupt, bloated with public servants with large public pensions from expending a life working on the dole. Believe me it (California) is not a place where people want to go to anymore. It is the poster child for what a state should not be. It would be a big favor to the rest of the Citizens of this country to deed California back to Mexico, it is a human waste land. Real Estate prices will fall another 30%, fortunately I only invested in Iowa Farmland during my lifetime, never owned a stock, and my farms have done nothing but appreciate in value during this depression. You boys better get a life. The road has ended, the party is over. Adios Amigos.
I suppose you’ve never taken a farm subsidy?
” Gas prices haven’t budged in years. The money supply keeps declining. Bond yields keep tanking. Oil prices are half their all-time high. The dollar is surging.
Where is all this inflation? The inflationists have resorted to conspiracy theories and fake websites that promote gold. Where are the real facts that back this inflation story?”
I’m not sure you’re accurate here on all of these points. While I believe we are in general, in a deflationary period, I think it is wage pressures causing a lot of it. With unemployment so high, there is just no bargaining power left for the worker.
That said, while oil prices might be half their (bubble) all-time high in 2008, they are about 50% higher than 2006. Inflation or deflation?
The dollar is surging mainly due to the sovereign debt problems not because our economy and dollar should be trusted necessarily. Gold is surging, not because of increased advertising, but because many have lost faith in sovereign currencies.
In my humble opinion, I do not have confidence in Bernanke to give us a soft landing. As soon as the velocity of the money that is sitting in record amounts in Fed Reserves starts to enter the economy, I think the inflationists will have their day. If we continue to “grow” anemically, or worse, fall into another recession, the opposite will happen. Neither one is a good solution. It feels like we are on the knife-edge of stability, with 2 of the 3 possible scenarios (inflation, deflation, soft landing) being negative.
Personally, I think it is time to hunker down, watch what happens and be ready for whichever direction the economy takes. This is going to take a long period of time to sort out I’m afraid. Preserve your capital while you can.
Forget anything before the end of World War II. Things were entirely different before then. America’s best economic years were from 1947-1972. Housing prices hovered around 110 on the Shiller index. Indeed, even after that period, except for a couple of spikes, that was the usual index number. Housing will need to return to that level before it will have hit bottom. It may shoot below it, but hopefully not by much, and if it does, it will likely bounce back to it.
The exotic loan passages of the 2000s are an aberration. Congress should outlaw them, but even if they don’t, I don’t expect banks and their investors to return to the more outrageous gimmicks. As a result, an index level much above 110 is simply not sustainable. At best, it might settle around 120, but even that’s unlikely.
Congress should repeal the mortgage interest deduction, grandfathering it for those who bought under and perhaps phasing it out over a period of years thereafter. But it probably won’t do that either. Were Congress to mandate 20% down payments for all loans made by FDIC-insured institutions and for those subject to government backing and eliminate the mortgage interest deduction, then prices would fall further, but I would place the odds of either of those two events at nearly nil.
So, look for prices to return to the approximately 50-year level of slightly above 110. Until they do, housing is over priced. Of course, real estate is local and buyers need to take into consideration the local averages in making any decision to buy.
Angry MBA, you need to lose your anger. And the commenter who suggested that your treasure needs to be invested for the next life was giving you some wise advice. Life is but a vapor. We are here for a brief time and then we are gone. For everyone else, God cares for the birds and the lilies; He’ll certainly care for us. Don’t worry.
So you guys want to buy houses at 1890 prices.. best of luck with that!.. keep waiting for the elusive double dip.. I guess u will throw in the towel and buy at the top in Dec 10 when S&P balsts thru 1500