bostonbubble.com Forum Index bostonbubble.com
Boston Bubble - Boston Real Estate Analysis
 
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 

SPONSORED LINKS

Advertise on Boston Bubble
Buyer brokers and motivated
sellers, reach potential buyers.
www.bostonbubble.com

YOUR AD HERE

 
Go to: Boston real estate bubble fact list with references
More Boston Bubble News...
DISCLAIMER: The information provided on this website and in the associated forums comes with ABSOLUTELY NO WARRANTY, expressed or implied. You assume all risk for your own use of the information provided as the accuracy of the information is in no way guaranteed. As always, cross check information that you would deem useful against multiple, reliable, independent resources. The opinions expressed belong to the individual authors and not necessarily to other parties.

Historical data

 
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond
View previous topic :: View next topic  
Author Message
Joey
Guest





PostPosted: Sat Jul 16, 2005 2:46 pm GMT    Post subject: Historical data Reply with quote

My friend says that housing is a solid investment because even if it goes down in the short term house prices always rebound. In fact he says there has never been a 15 year period where investors did not make money on their houses. Does anyone have a link that shows historical data for house prices so that I can prove him wrong?
Back to top
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Mon Jul 18, 2005 4:44 am GMT    Post subject: There are many ways to rebut this Reply with quote

Real estate prices have been declining in Japan for the last 15 years:

http://jerome-a-paris.dailykos.com/storyonly/2005/6/17/112229/299

The chart on the page above should be sufficient to show that there definitely have been periods in time when an investment in real estate would have lost money even when held for an extended period of time. Just from eyeballing the chart, it appears that even if you had bought as long ago as around 22 or 23 years (and definitely 15), you would still be looking at a likely loss if you sold today in Japan.

My understanding is that real estate markets have typically been more influenced by local factors than by national factors, so there are probably a few US cities where industries have failed or moved and economies have withered, thus leading to prolonged local slumps in jobs and therefore real estate. I suspect that if what your friend says about the 15 year time frame is correct, that would apply only on a national level in the US and not to individual cities/areas. Japan shows that a national decline can happen (and indeed continues to happen). But what if your friend counters by saying that the Japan is not the US? There have probably been prolonged downturns in areas of the US as well. Look for historical data for cities that have taken a severe economic hit and you might find periods of 15 years or more where the price appreciation would have been negative in the US. Does anybody have suggestions for what cities to look in?

More importantly, when you adjust for inflation I doubt that your friend's statement would hold even nationally in the US. In the second edition of his book book Irrational Exuberance, Robert Schiller adjusted housing prices for inflation between 1890 and 2004 and found that real appreciation was only 0.66% per year, with most of that owing to the boom of the past few years. I haven't read his book yet, but perhaps he enumerates the individual years in it, in which case it would be a good place to search for a 15 year losing streak.

Even so, 0.66% is a miserable appreciation rate and most importantly it isn't the actual return - it is only the price appreciation. The change in prices does not capture what the "investor" would have paid in yearly property taxes, maintenance, insurance, transaction costs, etc. I would be very surprised if those items did not make the real (inflation adjusted) return negative over those 114 years. Bear in mind, that is the average - returns would be much worse during a 15 year period that included a slump.

Finally, according to The Economist, the average holding time for property in the US is seven years, not fifteen. All of the interest only loans and ARMs that have exploded in popularity recently have an even shorter time horizon than that. The flippers and speculators driving the market aren't looking fifteen years into the future, which is one reason that property prices have drifted so far from their fundamentals.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Tue Jul 19, 2005 3:29 am GMT    Post subject: Inflation adjusted chart for US Reply with quote

To follow up on my last post, I found an inflation adjusted chart of home values in the US:

http://www.edab.org/newsletter/Quarterly/q7-04_files/image010.gif

from the page:

http://www.edab.org/newsletter/Quarterly/q7-04_files/real_estate.html

It doesn't go back very far, relatively speaking, but it does go back far enough to prove your friend wrong, assuming the numbers presented are correct, using housing prices from the US itself. Someone who bought a house at the median price at the very top of the peak that you see around Q1 1978 would have had to have lost money in real terms if the same house were sold 15 years later at the median price. In fact, they would have lost month until around Q1 1998 (I'm eyeballing it - that may be off somewhat, but close enough to refute your friend's 15 year claim). Yes, there was a boom and bust in the middle where the buyer could have sold at a higher price, but that involves market timing and doesn't validate the assertion that if you wait 15 years you are safe since the bust erased the gains. Also, bear in mind that all the numerous expenses associated with buying, owning, and selling a home are not captured in this data, so the actual investment return would necessarily be lower (see my previous post).

I still think that there are probably some even more dramatic counterexamples to be discovered which show losing streaks over 15 years in certain US cities. I poked around for awhile on the Census Bureau website, but the data I have found so far didn't go back far enough.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
unlawflcombatnt



Joined: 02 Aug 2005
Posts: 13

PostPosted: Mon Aug 08, 2005 7:18 pm GMT    Post subject: Bubble Unsustainability Reply with quote

Admin,

Thanks for posting the links to the graphs. From those graphs, several trends are noteworthy.

From the 34-yr. U.S. Housing Price chart it appears that price rises are cyclic. And it appears that the current appreciation of home prices has far exceeded the magnitude of previous cycles in both amount of appreciation and duration of the appreciation period. In other words, it appears prices are higher than they should be, and that prices have risen much longer than they previously did.

On the home price vs. employment chart, it appears the current appreciation does not follow the previous patterns, where it was somewhat related to employment growth. In the past it appears employment growth and decline were related to home price growth and decline. However, in this current appreciation cycle, home prices have skyrocketed while employment has declined.

It appears the current appreciation pattern is unique in magnitude, duration, and relation to income and employment. To me it appears even more unsustainable than I previously thought.

unlawflcombatnt
_________________
unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary
Back to top
View user's profile Send private message Send e-mail Visit poster's website
Display posts from previous:   
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond All times are GMT
Page 1 of 1

 
Jump to:  
You can post new topics in this forum
You can reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum


Forum posts are owned by the original posters.
Forum boards are Copyright 2005 - present, bostonbubble.com.
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group