house prices, was the bubble really that big?

[mattpegher]

I was looking at house prices on zillow for my area and the country as a whole and noticed that the average house price ten years ago was about half the peak but that the price only dropped about 25% since then. Then I looked at census data that seemed to show a steady rise and that the boom wasnt that severe.

Median Home Values

2000 1990 1980 1970 1960 1950 1940

Adjusted to 2000 dollars
United States $119,600 $101,100 $93,400 $65,300 $58,600 $44,600 $30,600

taken from http://www.census.gov/hhes/www...s/historic/values.html

Zillow puts the average us home at 200K today


then I see this http://www.businessinsider.com...orth-1000-words-2009-2

Boy it really depends how you spin it.

 

[Slew Foot]

Depends on where your area is. In CA, prices climbed 2-400% between 2000 and 2006

 

[cliftonite]

Originally posted by: mattpegher
I was looking at house prices on zillow for my area and the country as a whole and noticed that the average house price ten years ago was about half the peak but that the price only dropped about 25% since then. Then I looked at census data that seemed to show a steady rise and that the boom wasnt that severe.

Median Home Values

2000 1990 1980 1970 1960 1950 1940

Adjusted to 2000 dollars
United States $119,600 $101,100 $93,400 $65,300 $58,600 $44,600 $30,600

taken from http://www.census.gov/hhes/www...s/historic/values.html

Zillow puts the average us home at 200K today


then I see this http://www.businessinsider.com...orth-1000-words-2009-2

Boy it really depends how you spin it.

Why dont you look at Sparta's average in 06 at the peak of the bubble? It was probably closer to 400k.

 

[LegendKiller]

Originally posted by: mattpegher
I was looking at house prices on zillow for my area and the country as a whole and noticed that the average house price ten years ago was about half the peak but that the price only dropped about 25% since then. Then I looked at census data that seemed to show a steady rise and that the boom wasnt that severe.

Median Home Values

2000 1990 1980 1970 1960 1950 1940

Adjusted to 2000 dollars
United States $119,600 $101,100 $93,400 $65,300 $58,600 $44,600 $30,600

taken from http://www.census.gov/hhes/www...s/historic/values.html

Zillow puts the average us home at 200K today


then I see this http://www.businessinsider.com...orth-1000-words-2009-2

Boy it really depends how you spin it.

Case-Shiller, the basis for the last graph, is not "spin". In 10 years housing went up 50% from 40-50, 30% from 50-60, 12% from 60-70, 43% from 70-80, 7.5% from 80-90, 19% from 90-00, and 68% from 00-09.

Now, 68%, which outstrips the highest point of inflation in modern US history (70-80), by a whopping 25%.

That is a *MASSIVE* appreciation compared to historical standards.

Once you look at the adjustment, compared to CPI, you get an even bigger difference (your info is only adjusted to 2000 dollars, not stripping out inflation adjustments for each period's prices).

 

[alchemize]

Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

 

[LegendKiller]

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

 

[Robor]

My neighbor pays close attention to values in our neighborhood. He said identical units sold as high as $180K at peak and more recently have sold in the low $90K's. Zillow puts our units at $106k right now.

 

[alchemize]

Originally posted by: LegendKiller

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

Ask any builder how much a roll of romex, copper pipe, drywall, 2x4's, nails, etc. were during the boom (and how much they are today). Also look at the expectation HGTV put on every house, you gotta have granite counters, stainless appliances, new floors, etc. to sell a house.

I don't know how much that drove house prices as a percent of that curve, and how much increased square footage did, but it definitely did.

 

[GTKeeper]

Originally posted by: alchemize

Originally posted by: LegendKiller

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

Ask any builder how much a roll of romex, copper pipe, drywall, 2x4's, nails, etc. were during the boom (and how much they are today). Also look at the expectation HGTV put on every house, you gotta have granite counters, stainless appliances, new floors, etc. to sell a house.

I don't know how much that drove house prices as a percent of that curve, and how much increased square footage did, but it definitely did.

I don't buy this argument. You are saying houses got more expensive because they became more 'luxurious'. Not the case. People living in existing SHITTY ass homes in Cali saw a HUGE appreciation.

 

[StageLeft]

It wasn't Japan-big, but it was substantial, though clearly more so in certain areas which are now being nailed. Parts of California have seen prices fall way more than 50%. I think the state average is around 50% or so now. I saw a home buying show and they showed some houses for under 200k in Stockton, CA that are actually pretty nice and don't look overpriced at all (some were going for about 35-40% of their original asking value). The bubble will over contract, especially with the depth of this recession.

 

[LegendKiller]

Originally posted by: alchemize

Originally posted by: LegendKiller

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

Ask any builder how much a roll of romex, copper pipe, drywall, 2x4's, nails, etc. were during the boom (and how much they are today). Also look at the expectation HGTV put on every house, you gotta have granite counters, stainless appliances, new floors, etc. to sell a house.

I don't know how much that drove house prices as a percent of that curve, and how much increased square footage did, but it definitely did.

What you don't realize is that the SPCS takes into account sales of the *SAME* home repeatedly (at least 2 times) and tracks that through time. Thus, while there may have been improvements, those improvements weren't massive enough to reconcile a doubling or even trebeling in price.

The costs of building supplies, overall, didn't increase that much, as I have already said, and has been evidenced by Case-Shiller in many graphs. This can be seen here.

http://www.doctorhousingbubble...er-historical-data.png


There is also the Turner Building Cost Index.

http://www.data360.org/dsg.aspx?Data_Set_Group_Id=850

However, this appears to be pre-inflation, whereas the Case-Shiller is inflation adjusted. Thus, once you strip out inflation, the building costs haven't gone up nearly as high as one would believe. While it did go up and that did feed into prices, it wasn't as big of an input as you would think, especially considering the amount of increases in old homes.

Now, if you have other evidence, solid, statistically reliable, and repeatable, evidence, please provide it.

 

[Vette73]

Originally posted by: LegendKiller

Originally posted by: alchemize

Originally posted by: LegendKiller

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

Ask any builder how much a roll of romex, copper pipe, drywall, 2x4's, nails, etc. were during the boom (and how much they are today). Also look at the expectation HGTV put on every house, you gotta have granite counters, stainless appliances, new floors, etc. to sell a house.

I don't know how much that drove house prices as a percent of that curve, and how much increased square footage did, but it definitely did.

What you don't realize is that the SPCS takes into account sales of the *SAME* home repeatedly (at least 2 times) and tracks that through time. Thus, while there may have been improvements, those improvements weren't massive enough to reconcile a doubling or even trebeling in price.

The costs of building supplies, overall, didn't increase that much, as I have already said, and has been evidenced by Case-Shiller in many graphs. This can be seen here.

http://www.doctorhousingbubble...er-historical-data.png


There is also the Turner Building Cost Index.

http://www.data360.org/dsg.aspx?Data_Set_Group_Id=850

However, this appears to be pre-inflation, whereas the Case-Shiller is inflation adjusted. Thus, once you strip out inflation, the building costs haven't gone up nearly as high as one would believe. While it did go up and that did feed into prices, it wasn't as big of an input as you would think, especially considering the amount of increases in old homes.

Now, if you have other evidence, solid, statistically reliable, and repeatable, evidence, please provide it.

Sorry but the cost of most building supplies has dropped a whole lot. Drywall is down 40%, copper wire down over 30%, lumber down over 25%, and so on. And that is not even the top of the prices as I started keeping up a little after the top of the boom. Don;t get me started on the price of OSB/Plywood and the price changes it has gone through. I have seen some drop by 50% or more.

I did a remodel last year and will do an extension this year. So I follow prices very well. I used eveything in our remodel from wire, copper pipe, lumber, plywood, osb, nails/screws, tile, cement, etc... and can look at what I paid and what they sell for now.

 

[LegendKiller]

Originally posted by: Marlin1975

Sorry but the cost of most building supplies has dropped a whole lot. Drywall is down 40%, copper wire down over 30%, lumber down over 25%, and so on. And that is not even the top of the prices as I started keeping up a little after the top of the boom. Don;t get me started on the price of OSB/Plywood and the price changes it has gone through. I have seen some drop by 50% or more.

I did a remodel last year and will do an extension this year. So I follow prices very well. I used eveything in our remodel from wire, copper pipe, lumber, plywood, osb, nails/screws, tile, cement, etc... and can look at what I paid and what they sell for now.

Great, so the prices dropped. So what?

There is not a 1:1 correlation between housing prices and material prices. Equating the two is silly.

 

[alchemize]

Originally posted by: GTKeeper

Originally posted by: alchemize

Originally posted by: LegendKiller

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

Ask any builder how much a roll of romex, copper pipe, drywall, 2x4's, nails, etc. were during the boom (and how much they are today). Also look at the expectation HGTV put on every house, you gotta have granite counters, stainless appliances, new floors, etc. to sell a house.

I don't know how much that drove house prices as a percent of that curve, and how much increased square footage did, but it definitely did.

I don't buy this argument. You are saying houses got more expensive because they became more 'luxurious'. Not the case. People living in existing SHITTY ass homes in Cali saw a HUGE appreciation.

I'm saying the cost of NEW houses got more expensive because they a) had more sf than at any point in history b) had more expensive materials.

New houses were just one piece of the bubble, not the whole bubble.

 

[alchemize]

Originally posted by: LegendKiller

Originally posted by: alchemize

Originally posted by: LegendKiller

Originally posted by: alchemize
Case-shiller ignores commodity and other building material prices and it ignores square footages of new homes mixed into the market, so I think while it's overall trend is a good measure, it has some flaws...

As it should ignore material prices since they are prone to wild swings. However, overall, material prices didn't increase that much compared to inflation, a comparison Shiller makes in several iterations of his graphs. Long-run material prices didn't affect the housing bubble.

Ask any builder how much a roll of romex, copper pipe, drywall, 2x4's, nails, etc. were during the boom (and how much they are today). Also look at the expectation HGTV put on every house, you gotta have granite counters, stainless appliances, new floors, etc. to sell a house.

I don't know how much that drove house prices as a percent of that curve, and how much increased square footage did, but it definitely did.

What you don't realize is that the SPCS takes into account sales of the *SAME* home repeatedly (at least 2 times) and tracks that through time. Thus, while there may have been improvements, those improvements weren't massive enough to reconcile a doubling or even trebeling in price.

The costs of building supplies, overall, didn't increase that much, as I have already said, and has been evidenced by Case-Shiller in many graphs. This can be seen here.

http://www.doctorhousingbubble...er-historical-data.png


There is also the Turner Building Cost Index.

http://www.data360.org/dsg.aspx?Data_Set_Group_Id=850

However, this appears to be pre-inflation, whereas the Case-Shiller is inflation adjusted. Thus, once you strip out inflation, the building costs haven't gone up nearly as high as one would believe. While it did go up and that did feed into prices, it wasn't as big of an input as you would think, especially considering the amount of increases in old homes.

Now, if you have other evidence, solid, statistically reliable, and repeatable, evidence, please provide it.

I dunno what the real story is. I just wish Case/Shiller could be adjusted for those additional variables (higher building materials costs/higher square footage in new houses) so we could see how big or small a piece it was. Call it the Case/Shiller/Alchemize index.

 

[dullard]

Like others have said, you are missing the peak when you take data every 10 years. The peak in July 2006 can't be seen if you only look at data from 2000 and 2009.

I realize that this data is covered by your second link, but it is far more dramatic if you look at the video of the data. That is well worth your 4 minutes.

 

[Vette73]

Originally posted by: LegendKiller

Originally posted by: Marlin1975

Sorry but the cost of most building supplies has dropped a whole lot. Drywall is down 40%, copper wire down over 30%, lumber down over 25%, and so on. And that is not even the top of the prices as I started keeping up a little after the top of the boom. Don;t get me started on the price of OSB/Plywood and the price changes it has gone through. I have seen some drop by 50% or more.

I did a remodel last year and will do an extension this year. So I follow prices very well. I used eveything in our remodel from wire, copper pipe, lumber, plywood, osb, nails/screws, tile, cement, etc... and can look at what I paid and what they sell for now.

Great, so the prices dropped. So what?

There is not a 1:1 correlation between housing prices and material prices. Equating the two is silly.

I never said that. You said "costs of building supplies, overall, didn't increase that much" which is false. I have reciepts that show that here in VA and my parents have plenty from NC as well. So I know, at least on the east coast, the prices went up real high and have come down as well.

And I agree that house prices went up more due to speculation then added value.

 

[dullard]

Originally posted by: alchemize
I dunno what the real story is. I just wish Case/Shiller could be adjusted for those additional variables (higher building materials costs/higher square footage in new houses) so we could see how big or small a piece it was. Call it the Case/Shiller/Alchemize index.

Case/Shiller tracks the value OF A GIVEN HOME over time. The price of the raw materials used to build your house doesn't change over time. Suppose it took $20,000 to build your house in 1950 if you checked the data last year, then it still took $20,000 to build your house in 1950 if you check that data this year. Changing raw material prices has NO effect on the matierials already in your house.

The NAR (National Association of Realtors) tracks the value of the homes sold each month. This includes old homes (unaffected by material fluctuations) and new homes (affected by material fluctuations).

The US Census Bureau has an index that tracks the prices solely of new homes (which is affected by material fluctuations). They provide all the monthly data that you could ever want.

So, basically, all three forms of looking at the data are already out there. Why again does the Case/Shiller data need to be adjusted if you can see the NAR or Census data?

 

[alchemize]

Originally posted by: dullard

Originally posted by: alchemize
I dunno what the real story is. I just wish Case/Shiller could be adjusted for those additional variables (higher building materials costs/higher square footage in new houses) so we could see how big or small a piece it was. Call it the Case/Shiller/Alchemize index.

Case/Shiller tracks the value OF A GIVEN HOME over time. The price of the raw materials used to build your house doesn't change over time. Suppose it took $20,000 to build your house in 1950 if you checked the data last year, then it still took $20,000 to build your house in 1950 if you check that data this year. Changing raw material prices has NO effect on the matierials already in your house.

The NAR (National Association of Realtors) tracks the value of the homes sold each month. This includes old homes (unaffected by material fluctuations) and new homes (affected by material fluctuations).

The US Census Bureau has an index that tracks the prices solely of new homes (which is affected by material fluctuations). They provide all the monthly data that you could ever want.

So, basically, all three forms of looking at the data are already out there. Why again does the Case/Shiller data need to be adjusted if you can see the NAR or Census data?

Therein lies the problem. Let's assume 10 years of data, with 10 homes built each year.

Year 1, 100 houses, average price 100K, average size 2000 sf, cost/sf = $50/sf
Year 2, 110 houses, average price 103K, average size 2000 sf, cost/sf = $51.5/sf
Year 3, 120 houses, average price 107K, average size 2000 sfcost/sf = ...
Year 4, 130 homes, average price 110K, average size 2000 sf
Year 5, 140 homes, average price 120K, average size 2000 sf, cost/sf = $60/sf

Now let's have the bubble hit, and we have sf increase, and we have increased building costs.

Year 6, 200 homes, average price 160K, average size 2200 sf, cost/sf = $72
Year 7, 240 homes, average price 200K, average size 2400 sf, cost/sf = $83
Year 8, 280 homes, average price 240K, average size 2600 sf, cost/sf = $92
Year 9, 320 homes, average price 300K, average size 2900 sf, cost/sf = $104
Year 10, 360 homes, average price 350K, average size 3300sf, cost/sf = $106

An exaggerated example, but I think this is what happened over time.

All those "old homes" prices are bouyed by the new home pricing (and factored into Case-shiller data). Eveyone wants $100 per sf for their houses cause that's what new houses get...the home prices are loaded up with bigger, newer, more expensive houses steepening the curve. Bubble pops and everything tanks...but that does that mean we're going to return to year 5 prices because nobody builds 2000sf homes much anymore? But I have read a lot about smaller houses are the new thing for builders that do have business...

Anyhow, the best quote I heard in a while is "your house is worth what your neighbors are selling theirs for".

 

[dullard]

Originally posted by: alchemize
All those "old homes" prices are bouyed by the new home pricing (and factored into Case-shiller data).

Please explain what you mean by "Factored into". The Case-Shiller data is solely homes that have been sold multiple times (ie they pretty much DON'T include homes that have been built recently in the material price and square footage bubbles). Those homes will eventually make it into the Case-Shiller data set, but they are too new to have been sold multiple times at any significant level. But of course, if a neighbor comes in and builds a fantastic new home near yours, it may effect your home price. So, indirectly, there is some effect. Is that what you mean by "factored into"?

Bubble pops and everything tanks...but that does that mean we're going to return to year 5 prices because nobody builds 2000sf homes much anymore?

2000+ ft^2 homes will always be priced differently than 1000 ft^2 homes. It would be silly to think that the new McMansions will return to the home price of older smaller homes. For a while, they should retain a price premium (albiet a smaller premium than they had before). But, since the McMansions were usually built shoddily with material that looks good/performs bad, that premium will come crashing down (I call them the Walmart quality homes, looks good new, but won't last). But I would estimate that price crash should take 10 or 20 years for the bad performance to really show. If energy prices skyrocket and no one can afford to maintain them, I could see in the distant future that these crumbling cardboard McMansions may actually be worth LESS than smaller homes. But those are both really long term guesses.

Anyhow, the best quote I heard in a while is "your house is worth what your neighbors are selling theirs for".

That has always been the truth. The only better measurement is that your house is worth what you sell it for.

 

[LegendKiller]

Originally posted by: alchemize

Originally posted by: dullard

Originally posted by: alchemize
I dunno what the real story is. I just wish Case/Shiller could be adjusted for those additional variables (higher building materials costs/higher square footage in new houses) so we could see how big or small a piece it was. Call it the Case/Shiller/Alchemize index.

Case/Shiller tracks the value OF A GIVEN HOME over time. The price of the raw materials used to build your house doesn't change over time. Suppose it took $20,000 to build your house in 1950 if you checked the data last year, then it still took $20,000 to build your house in 1950 if you check that data this year. Changing raw material prices has NO effect on the matierials already in your house.

The NAR (National Association of Realtors) tracks the value of the homes sold each month. This includes old homes (unaffected by material fluctuations) and new homes (affected by material fluctuations).

The US Census Bureau has an index that tracks the prices solely of new homes (which is affected by material fluctuations). They provide all the monthly data that you could ever want.

So, basically, all three forms of looking at the data are already out there. Why again does the Case/Shiller data need to be adjusted if you can see the NAR or Census data?

Therein lies the problem. Let's assume 10 years of data, with 10 homes built each year.

Year 1, 100 houses, average price 100K, average size 2000 sf, cost/sf = $50/sf
Year 2, 110 houses, average price 103K, average size 2000 sf, cost/sf = $51.5/sf
Year 3, 120 houses, average price 107K, average size 2000 sfcost/sf = ...
Year 4, 130 homes, average price 110K, average size 2000 sf
Year 5, 140 homes, average price 120K, average size 2000 sf, cost/sf = $60/sf

Now let's have the bubble hit, and we have sf increase, and we have increased building costs.

Year 6, 200 homes, average price 160K, average size 2200 sf, cost/sf = $72
Year 7, 240 homes, average price 200K, average size 2400 sf, cost/sf = $83
Year 8, 280 homes, average price 240K, average size 2600 sf, cost/sf = $92
Year 9, 320 homes, average price 300K, average size 2900 sf, cost/sf = $104
Year 10, 360 homes, average price 350K, average size 3300sf, cost/sf = $106

An exaggerated example, but I think this is what happened over time.

All those "old homes" prices are bouyed by the new home pricing (and factored into Case-shiller data). Eveyone wants $100 per sf for their houses cause that's what new houses get...the home prices are loaded up with bigger, newer, more expensive houses steepening the curve. Bubble pops and everything tanks...but that does that mean we're going to return to year 5 prices because nobody builds 2000sf homes much anymore? But I have read a lot about smaller houses are the new thing for builders that do have business...

Anyhow, the best quote I heard in a while is "your house is worth what your neighbors are selling theirs for".

Sigh. Do you not understand what an INDEX is? Indexes guage the price CHANGE, not the absolute price. Considering that Shiller tracks individual houses, the price CHANGE of a house is what matters, not the feeding of square feet or anything else.

Thus, the SPCS index is a far more accurate measurement than prices or $/sqft, because it boils it down to the incremental increase or decrease