Real Estate Bubble Thought

[AreaCode7O7]

Do you think it would be accurate to create a ratio using the peak and bottom home prices during the Great Depression and apply it to the peak home prices from last July/August and come out with a relatively accurate market bottom prediction price for real estate?

The assumption is that the rate of decline and relative bottoming out of the market mirror the Great Depression fairly accurately. I'm sure there are articles out there covering this; does anybody have links from good sources? The only documentation I've found so far either doesn't include hard numbers ("home prices are falling faster than the Great Depression") or state that government records don't go back so far and accurate house valuation can't be done.

 

[theeedude]

No, peak to bottom ratio is useless. I would be more interested in price/avg income ratio.
Also, take a look at Japan's RE bubble bursting and lost decade, may be better precedent than great depression.

 

[AreaCode7O7]

Originally posted by: senseamp
No, peak to bottom ratio is useless. I would be more interested in price/avg income ratio.
Also, take a look at Japan's RE bubble bursting and lost decade, may be better precedent than great depression.

Thanks! I found this site: http://mysite.verizon.net/vodkajim/housingbubble/ The data is incomplete and not entirely relevant, but interesting anyway.

 

[Martin]

Originally posted by: AreaCode707

Originally posted by: senseamp
No, peak to bottom ratio is useless. I would be more interested in price/avg income ratio.
Also, take a look at Japan's RE bubble bursting and lost decade, may be better precedent than great depression.

Thanks! I found this site: http://mysite.verizon.net/vodkajim/housingbubble/ The data is incomplete and not entirely relevant, but interesting anyway.

A median house price:median income ratio of about 3.5:1 seems to be sustainable (though this will vary based on location).

AFAIK, during the 2001-2007 "boom", real median income either stagnated or dropped several percent, so it should have been clear that housing was a bubble.

 

[miketheidiot]

Originally posted by: Martin


A median house price:median income ratio of about 3.5:1 seems to be sustainable (though this will vary based on location).

something like this is probably the best long run predictor, you could probably add a couple variables to make it better though.

 

[AlienCraft]

Anything that fails to factor the disparity in personal income over time leaves a lot to be desired. I suppose it depends on who wants to know.

 

[Ozoned]

How would you factor in the wild swings in the value of the dollar and inflation?

 

[miketheidiot]

Originally posted by: Ozoned
How would you factor in the wild swings in the value of the dollar and inflation?

wild swings in the dollar should have minimal effect, since houses are not moble and are stuck under the dollar or whatever their native currency may be

 

[StageLeft]

No, because pre-depression and pre-whateverthisis were not the same and furthermore, this won't be the same as the depression, at least it's certainly not very likely.

 

[jackschmittusa]

Much of the gains in home value in the last 5 years was artificial anyway. Brokers, bankers, and appraisers colluded to jack prices up (to increase their fees) and idiot banking practices assured that there would be people that could get mortgages for the inflated prices. Real estate speculators added fuel to the fire. Investment banks intentionally overvalued their mortgage bundles (to increase fees) and helped create the illusion that real estate values would only go up forever. Every time they changed hands, they got valued higher.

All of this kind of makes it hard to figure out the real value of anything, especially with so many distressed properties on the market.

Next, watch the office space market go to hell. New space not filling because no new spending or expansion for many companies. Existing space going vacant as more companies cut back or go out of business. Already happening with retail space.

 

[First]

Originally posted by: Martin

Originally posted by: AreaCode707

Originally posted by: senseamp
No, peak to bottom ratio is useless. I would be more interested in price/avg income ratio.
Also, take a look at Japan's RE bubble bursting and lost decade, may be better precedent than great depression.

Thanks! I found this site: http://mysite.verizon.net/vodkajim/housingbubble/ The data is incomplete and not entirely relevant, but interesting anyway.

A median house price:median income ratio of about 3.5:1 seems to be sustainable (though this will vary based on location).

AFAIK, during the 2001-2007 "boom", real median income either stagnated or dropped several percent, so it should have been clear that housing was a bubble.

You're right, it decreased very slightly, but factor in the ~ 1% that CPI overestimates inflation and wages probably barely made an increase in real terms since Bush became POTUS. In either case, signs were there that a housing market existed as early as mid-2006, and obvious by 07. Amazing it took that long for us to figure out that people had to de-leverage from overly burdensome mortgages.

 

[wwswimming]

it'll probably be an accurate model for some areas.

but, geography counts for a lot too. i could almost buy a city block in Detroit.

i don't know what happened to Michigan property values during the Depression.