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Thursday, April 5, 2007

The Roller Coaster Ride

posted by on April 5 at 11:16 AM

U.S. home prices, adjusted for inflation, 1890 - present, plotted to a roller coaster:

(Via Sullivan)

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Quite possibly the most boring roller coaster ever.

Posted by move_it_by_bike | April 5, 2007 11:51 AM

wow, how meta.

Posted by pip | April 5, 2007 11:57 AM

"Adjusted for inflation..."

Housing costs are one the major factors used to calculate inflation. The math here gives me a headache....

Posted by golob | April 5, 2007 12:27 PM

I think I'm going to be sick.

Posted by Bauhaus | April 5, 2007 12:46 PM

SUCKERS, all of you.

Posted by Gomez | April 5, 2007 12:52 PM

Actually housing costs aren't used directly. There's a fairly ridiculous abstraction instead which is one of many reasons why inflation has been grossly underreported for the last several years.

Posted by dirge | April 5, 2007 1:19 PM

It'll be a lot more exciting when they complete construction on the ride by installing that multiple 360-degree death spiral at the end.

Posted by COMTE | April 5, 2007 1:20 PM

I'm no expert, but aren't rents (which are directly tied to housing prices) a major part of the CPI, which in turn can be used to calculate inflation?

I love the roller-coaster idea to show the stats, I just hate this sort of alarmist data-posting.

I'd much rather see the 25th-percentile housing cost to 25th-percentile income (in nominal dollars) over time, preferably broken down by region. Then again, I'm an enormous dork.

Posted by golob | April 5, 2007 1:43 PM

These are the prices of homes for sale, golob, not the general CPI.

It's only alarming because it's the truth. If you own a home or have a mortgage, you are overpaying like a mother.

Posted by Gomez | April 5, 2007 2:14 PM

Not to mention that unlike just about everything real estate is a rather fixed commodity. Not a whole lot of land has been added to the US since 1890(at least land that is not in the middle of the ocean or a frozen waste land.) In that same period population has increased 5 fold. While perhapses not affordable perse enough people can afford to buy houses at near there current levels. Are some markets overvalued sure just like some companies. But the idea that real estate is a huge bubble waiting to bust is inaccurate.

Posted by Giffy | April 5, 2007 3:12 PM

But Seattle is SPECIAL! Housing here will never go down and we'll continue to appreciate at 15% FOREVER! Buy NOW because in 10 years that $200,000 400sq ft studio will be $800,000!

Posted by investigatory journalist | April 5, 2007 3:20 PM

So, a given house costs twice as much today as it did in 1890 (controlling for inflation)? That seems right considering that most households today have twice as many breadwinners.

Also, without factoring in interest rates, this price index is meaningless. A better measure of cost would be monthly mortgage payments as a percentage of income.

Posted by Sean | April 5, 2007 3:38 PM

Sean, when prices go up five fold, having two breadwinners pay into a mortgage doesn't really help.

Also, keep in mind all the subprime mortgages and other raw deals that the market's swallowed up in the last few years.

It used to be you used no more than 10-20% of your income to pay on a home, or that was the idea. Now, unless you're pulling in $100K as a hosuehold, that's an impossible standard. Families are spending their entire paychecks just to keep up with the monthly costs of 'owning' a home.

I'm not buying this collective 'it's not a big deal'ism from the peanut gallery.

Posted by Gomez | April 5, 2007 3:45 PM

#14: "Sean, when prices go up five fold, having two breadwinners pay into a mortgage doesn't really help"

I agree, but since 1890 prices have gone up two fold, not five fold.

Maybe there is a bubble, maybe not, but I don't think this graph tells us either way.

Posted by Sean | April 5, 2007 5:15 PM

Lets take a hypothetical world in which there are 10 people making an average of 10 dollars and 100 plots of land. In this world housing prices will be low. There is plenty of land to build a houses, business, parks, etc. Fast forward 100 years. there are now 50 people making 30 dollars with the same plots of land. There will be substantially more competition for land. Whereas in the first model everyone will be able to acquire a plot of land in the second model people will have to share. (remember many plots will be used for business and other uses) Where in the first model supply outstripped demand in the latter demand outstrips supply.

Seattle is closer to the later.

Posted by Giffy | April 5, 2007 6:02 PM

Either Giffy is a real estate agent who just enrolled in econ 101...

or I'm just drunk, belligerent and needlessly lashing out at simplemindedness.

Strike that, both are true.

Posted by dirge | April 5, 2007 10:00 PM

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