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b0nd23Aug 25, 2010
The chart should really account for the correction that's taken place the last couple years. As it's shown here it implies that prices are still astronomically high (Case-Schiller index of ~200). They are still quite high, just not as high as this chart suggests.
Here's the wikipedia page for the Case-Schiller data: http://en.wikipedia.org/wiki/Case-Shiller_index
Also, to show the correction since 2006 as compared to that of 1989: http://en.wikipedia.org/wiki/File:Cshpi-peak.svg
mabsarkAug 28, 2010
Everyone should boycott Digg on Monday.
kd1sAug 30, 2010
Agreed. I recall reading an article by two economists in the late 1990's and they explained that the run up in real estate prices would be followed by corrections in the range of 30% to 70%.
And looking around here I can cite an example where a home worth $25,000 in 1999, rose in value to $350,000 in 2007, and is now at $35,000.
danheilbrunSep 1, 2010
I have a chart on my blog for this case shiller index. I think housing has a bit to fall.
http://ihousesandiego.posterous.com/private/zAwpmrymmx
novenatorAug 25, 2010
Through unfair business practices supported by fiscal economic policy (particularly deregulation), these greed demons are trying to turn the US into an absentee-landlord society. The whole encouraging/brainwashing folks to put a second mortgage on their house is all part of this too.
anomaly100Aug 25, 2010
I used to notice more of these ads, but they used to have scads of them saying, You can own a beautiful home like this for less than the cost of rent." That's too much temptation for a family of four that lives in a one bedroom and want a good life for their kids.
muppetpastorAug 26, 2010
I worked for an evil Mortgage company. I still cant scrub the guilt off my head for that. Training was straight up tutorial on robbing the retired of equity. Terrible. Only consolation - business went under two years later when the bubble exploded in their faces.
akairennAug 25, 2010
"People are bad at adjusting for inflation."
Understatement of the year. Which is why houses can be an appealing investment. Even if you're smart enough to realize that your money is increasingly worthless over time, a zero net profit is better than a number of common investments (I'm looking at you, savings accounts, CDs, et cetera) that fail to even keep up with inflation.
Plus, hey, you also have a house and can throw barbecues at will.
pgoetzAug 25, 2010
This is a good point. One must also factor in the utility of the investment: my money in a savings account doesn't really do anything for me, while a house does.
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
tdogg241Aug 25, 2010
But I like Will. Why would I want to throw barbecues at him?
Closed AccountAug 25, 2010
I am a nerd, so I tend to prefer mathematics, physics etc, over 'gut feeling' or 'common sense' when I evaluate various claims made by people on different topics.
Once I was told that "housing values will always increase!" (By implication, meaning that you cannot lose out by investing in property). To me, this is clearly incorrect. Taken to its logical conclusion, it means that eventually, nobody will be able to afford property apart from the richest person / entity in the world, who already owns it all anyway. Which is an absurdity.
Therefore, house prices must sooner or later continue to revert to the mean, either in little relatively painless jumps, or in big painful jumps.
arbysrocksAug 25, 2010
you might make money on your house if it's on water but other than that good luck
gravyleavesAug 25, 2010
don't forget ski resorts :-)
and....
kingnerdAug 25, 2010
The more and more I look at it the more I begin to think that owning a house is dumb...
Not only are you tied down to one place with a huge 30-year mortgage but you also have this looming debt over your head that if fail to pay you will be ruined. It almost requires either a consistent earnings improvement every year for 30yrs or the status quo, limits chances for risk and keeps you working the same job all for a zero profit?
While I don't really like my neighbors now, I know that can change it whenever I want...and I'm not responsible for home repairs.
Closed AccountAug 25, 2010
Which is why you shouldn't finance a home if you can't pay it off in a 10 or 15 year mortgage.
kingnerdAug 25, 2010
Majority of home-owners with a mortgage have a 30yr mortgage...whether it is smart or not is beside the point, it's what most people do.
bdbrAug 25, 2010
My biggest problem with the 30-year mortgage is that you pay a s**tload of interest - usually far more than the price of the house.
peekmanAug 26, 2010
............ what?
You are not tied down to one place... you can sell your house and move your mortgage to another. You do have payments to make and if you don't you can be foreclosed on... but if you are renting and you don't pay your rent you can be evicted.
Zero profit?... Owning a house is like saving for retirement. After 30 years when you are maybe 60 you have a few hundred thousand sitting in equity. If you don't like the risk of having all your money in your home use the equity for loans that get invested into other assets.
Although you may not be responsible for home repairs you do not get to make any home improvements either. You never get that 'dream house' your "wife" always wanted.
Owning a home is not dumb..... it's just not for everybody.
blapierreAug 25, 2010
Wow, someone trotted out this extremely misleading graph again.
Where is 0-59? Without it this graph makes it look like home prices have tripled since the 90's. But if you look closer prices haven't even doubled since then. The only reason to do this is to mislead readers. You may have a point, but you destroy any credibility you have when you produce a bulls**t graph like this.
tdogg241Aug 25, 2010
Well, the CSI never hit the 0-59 range, so there's no point in showing that level. Thus, the axis is shifted. You only have yourself to blame for drawing false conclusions from the graph.
mobislinkAug 26, 2010
I looked at the graph and it is pretty clear that prices have almost doubled sin the 90s.
herojonAug 29, 2010
You know, if the readers are too stupid to actually observe the entire graph including all the numbers on each axis, that doesn't make the person who made the graph deceitful. Sometimes it is better on graphs to not start at 0. In this case, maybe it would have been useful (although I didn't have any problems when I read it).
But say you are charting annual populations over the past 20 years. If you start at 0, almost all of the data is going to fit in a very small portion of the graph and it will make it extremely hard to read or gain any value from.
charlietunaAug 25, 2010
And yet useful facts like this (should be vetted, but still) are buried by news about Lindsay Lohan. *sigh*
Closed AccountAug 25, 2010
Bring on the correction.
bdbrAug 25, 2010
Its already happening. The graph conveniently stopped before that.
noblepaladinAug 25, 2010
Once housing became viewed as a great "investment", we had a big problem. People brought houses assuming that the price of the house would appreciate by double digit amounts each year, outpacing the stock market. The true investment value in a house is the rental income (if you live in the house, you can view it as "renting" to yourself). That is the only cash flow that is generated. If you think about it, this concept is pretty outrageous. The SP500 is representative of business in America as a whole, if the wealth in America is growing at a slower rate than home prices, pretty soon nobody can afford a house.
The big conundrum came when the Government wanted to make houses affordable and not crush the idea that houses are great investments that will have double digit returns. These are opposing goals. To make houses affordable, you have to make prices go down. However, if home prices went down, then all the people who brought homes as a retirement plan would be toast. The choice in the end was to give cheap loans so people can buy houses on credit, which would also push home prices up fast enough such that it would continue to be an "investment" that can fund retirements.
I think the biggest unintended side effect is the amount of credit that the housing market sucked up and destroyed. In the past, people realized that houses are not likely to give double digit annualized returns. It was one asset class out of many. People who wanted to build wealth didn't buy houses, they used the money to start their own business or to invest in other businesses. The housing market sucked away a lot of money from small businesses. When people borrow money to buy overpriced houses, they are not allocating that money into create their own business or investing in good businesses that need money to grow. It is one big contributor to jobs disappearing. Even today, a lot of money is tied up into housing instead of into small businesses.
Closed AccountAug 25, 2010
who wrote that ?
sskabcAug 26, 2010
Adjust graph for Population growth (including immigration) and Inflation, and we'll have a winner.
nygenxerAug 26, 2010
I crunched the numbers about ten years ago and found that housing prices were increasing so rapidly that I could never save up 10% for a down payment. I'm an engineer and I didn't buy a house because I couldn't afford one. The problem comes from the masses of people like my sister, a former Starbucks barista who got a $90K loan to buy a house with barely a $12K/year income. Who convinced her that she could afford a house? Non-stop advertisements from the very same companies who hedged their bets on a bubble, who later lied, claiming that no one could have seen this coming...but we bailed them out anyway.
Interestingly, I also concluded ten years ago that a college education was simply no longer worth the money. Wages have been flat since 1970 but the cost of college has increased by 7 to 8% every year. The mathematical turning point was about ten years ago.
So corporate America, keep hiring those business majors who never see it coming and keep ignoring those of us who do.
mobislinkAug 26, 2010
I agree fellow engineer. I graduated in 1999 and my education has paid off but these days higher education will just put you under a mountain of debt.
EconomyInCrisiAug 27, 2010
nygenxer hit the nail on the head. Most people were told housing prices would continue to skyrocket, so of course they listened and took out loans thinking they'd make more on their house then they'd have to pay in interest. This was a Fed-created bubble that was never based on supply and demand.
kingmattusAug 29, 2010
Demand is a bitch.