Very clever visualization via SpeculativeBubble: US Home prices, adjusted for inflation (via Shiller’s Irrational Exuberance), plotted as a roller coaster (using Atari’s RollerCoaster Tycoon).
Educational and amusing!
(hat tip: Doc Steenbarger)
Real Estate Roller Coaster
April 4, 2007 10:00am by Barry Ritholtz
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Shiller on Housing
Notice how the sky becomes more threatening toward the end of the ride. Cute.
in space, no one can hear you scream…
Just to play devil’s advocate on why 200 on the Schiller Index maybe be extreme, but not 160 (though even at 160 it’s a big drop from here). Basically, the Schiller Index shouldn’t be mean-reverting.
1910-1929: Immigration cut dramatically (decreased demand), automobile + mass transit expansion increases supply of usable residential land causing suburbs become bedroom communities.
1945-1955: Baby boom increases demand.
1955-1980: Increased demand tempered by abundant supply due to interstate expansion, migration of jobs away from urban core. As Schiller Index measures existing sales, urban prices fall due to white flight.
2000+: Immigration, road/mass transit expansion not keeping up with demand, etc. Lack of residential land on the bicoastal areas due to zoning.
Is this a sustainable paradox?….home prices increasing when supposedly in an age of instant communication where I should arbitrage my salary/housing costs by running my hedge fund in Kansas and telecommuting to Midtown.
That reminds me once I was on a roller coaster and it stopped at the top and we had to walk down-hope I don’t have to walk down in real estate!
Will the growth of prefab housing bring lower prices and help quench supply?
http://arts.guardian.co.uk/art/architecture/story/0,,2048116,00.html
Though you might think the concept is tacky, keep in mind SoHo’s now charming loft apartments were once pre-fab industrial structures (though for warehouses).
I wish the the actual dates would fly by as you rode the rollercoaster. It would help to put the ride in context.
After watching that, I’m ready to join David Lereah in calling another bottom in real estate. LOL.
Given how flawed the inflation indices have been I would take Shiller’s inflation adjusted prices with a grain of salt.
bravo!
I’ve been a lurker for awhile and am by no means an investor or real estate expert, so I don’t like to comment. I just enjoy learning more about everything going on.
I do have a question about the graph and possible reasons why home prices are going up. I’m constantly bemoaning to my stay at home wife (2 kids) that despite raises and above average take home pay, that we’re still sort of struggling and never able to get into a “median home.” One of the things we compete against (I’m 28, so we did get started early) is the two-income family. Since I’m not a “grapher,” is there anyway to chart the rise of the two-income family to see if there is a correlation between the rise of dual-income households and home prices? I believe inflation has played a role in the bubble and expect a tumble in home prices, but the reality is (depression / massive recession withstanding) that 160 should be quite affordable for dual income earners. Based on that affordability, is there a possibility that we’ll take a hit, but overall this level of home price will be sustained?
Any input would be swell.
The Big Pic just gets better and better.
This roller coaster would get some real g’s if you add the OTC housing derivatives market out three years to the latest Case-Shiller data…..
This roller coaster would get some real g’s if you add the OTC housing derivatives market out three years to the latest Case-Shiller data…..
Send that to Larry Kudlow. He runs that “Wizard of Oz” clip every time Gary Shilling is on. This clip ought to make things a little more fair and balanced…
Or maybe that “Wizard of Oz” clip is what comes at the end of the roller coaster track?
Im nausious
SHHHHHH !
Nobody is supposed to mention the word…. Stagflation.
.
look at nominal rates. prices don’t go down much…ever!
dcf – that’s an interesting question.
The US employment/population ratio and participation rates have been broadly rising since the 1970’s, which has contributed to a general increase in both supply of and demand for goods and services (as measured by real GDP). Of course, what’s missing from that analysis is the value of unpriced domestic services and lifestyle, and the very long cycle costs/benefits (such as the impact of a generation of latch-key kids) of dual income households. Each of us has to draw our own conclusions on the value these factors.
My guess is that the rise of the dual income household has driven the size and quality of a median house up, but local household formation trends are a larger factor in apples to apples pricing.
Pretty cool. They should’ve added screams during the dips. THAT would’ve been fun.
ECF and Estragon make good points. Other items to consider:
1. Total Home Values / GDP: this would take into account things like second homes, dual-income households, etc.
2. Inflation / Deflation of basic material asset classes that make homebuilding more or less affordable. To house 6 billion people worldwide with an increasing middle-class standard of living, basic building materials are sure to increase in cost, ie, become more scarce.
While walking over to see the Schwab folks for some help on a 401k, I thought about it a bit more and realized that the whole roller coaster thing is wrong since you’d have to chart everything regionally for the home prices in America and for the comparisons between dual incomes / inflation / deflation, etc.
Even dual income earners aren’t likely to be able to afford the median house price on the coasts. I’m in mpls and our median is about 330-350k. That’s still a monster of a nut to crack for your mortgage payment even if you get 20% down. Meanwhile Dallas and the Carolinas seem to have dirt cheap houses.
Just my two cents. Thanks for responding to my post.
maintenance will crash houses all on its own or just keep spending on your house and over capitalisiing