Real Estate Roller Coaster

[Tien]

I do predict a drop in real estate within the next few years.

Unless the government has something to do with say interest rates, the drop will not be significant, and will only happen in certain areas of North America, not the entire north america itself.

With the sub-prime lending industry going bananas with increasing rates of foreclosures, something may happen nationally.

[maxtower]

Were people saying in 1947 that home prices had gone up too much and were due for a fall? It did correct over the next couple years, but not all the way back down.
Has there been a fundamental shift in the way homes are bought today that increased demand to a point that prices are now higher?
Perhaps the securitization of housing debt loans has allowed more people to get financing without the traditional 20% down, leading to more demand? A lot of that debt is now defaulting, but I am sure there are a lot of borrowers who have jobs that allow them to make the payments, but they were previously unable to come up with the 20% down. I agree that housing prices seem too high today, but I don't know that we'll see them drop in half to get back to the 100 level on the chart. Maybe they'll drop 10% across the country. And as the above posters pointed out people are getting more home for a dollar today as well. Not only bigger houses, but I suspect a lot of higher quality materials are going into more lavish kitchens and bathrooms these days as well.

[hawk59]

[ QUOTE ]
[ QUOTE ]
I don't disagree with the recent trend that graph represents, but it would be better if it were based on dollars per square foot, which more accurately represents what we're getting when we buy a house. The average home was 1525 sf in 1975 and 2225 sf in 2005. http://www.census.gov/const/C25Ann/s...medavgsqft.pdf

So on average we're getting 25% more house in 2005 than 1975, but we're pretending like we're paying for the same size house from 1975. I imagine they were slightly smaller the older you get to a certain point.

[/ QUOTE ]

This is a very interesting point - along the same lines of overall changes in the size of homes, the study can not capture changes in the quality or features of homes. For instance, items such as granite countertops, security systems, etc. are much more common (I would guess) today then they were 20, 40, or 60 years ago - making comparisons on price alone somewhat less relevant.

I would like to note that I am not disagreeing with the overall premise of the study, but many factors such as size, quality, and features are not taken into account.

[/ QUOTE ]

But also take into account that between the 1890's and 1970's the differences in homes were much more profound than the difference between the 1970's and today. Things like indoor plumbing, electrical wiring, insulation, heating systems other than fireplaces, etc. But the index stayed near 100.

[scotchnrocks]

[ QUOTE ]

But also take into account that between the 1890's and 1970's the differences in homes were much more profound than the difference between the 1970's and today. Things like indoor plumbing, electrical wiring, insulation, heating systems other than fireplaces, etc. But the index stayed near 100.

[/ QUOTE ]

I would venture to say that these types of improvements cost the same over time. It is the same because we would pay $x for cutting-edge plumbing in 1950, and $x (inflation adjusted) for cutting edge plumbing today, but today's technology is far superior. Kind of like the difference in computers if we spent $2k on one in 2001 and $2k on one today.

[NajdorfDefense]

The graph is useless, it's unadjusted for everything important like size and quality, the data from earlier decades is pretty damn sparse, and it's not log-scale.

[jaydub]

Naj,

Nice definition of "everything". See SNR post above for the fallacy in your argument.

J

[NajdorfDefense]

[ QUOTE ]
Naj,

Nice definition of "everything". See SNR post above for the fallacy in his argument.

J

[/ QUOTE ]

His assumption is also false. Assuming constant labor + materials costs over decades/centuries is redonkulous.

The median house size Sq/Ft has grown by 50% over the past 20-25 years or so. That is not captured in Shiller's horrendously misleading graph. Neither are quality improvements. The move up from 50-60 is the same as 180-190 -- this is all obvious.

I guess you think a 1000 sqft' house 20 years ago should sell for the same inflation-adjusted price as a 1500' house today? Doesn't that sound absurd?

[NajdorfDefense]

'Lot sizes began to grow after the turn of the century. Early 20th century bungalows were one-storey or storey and a half dwellings of between 600 and 800 square feet....
Physical size of homes continued to grow, while household size was shrinking. Rise of suburbia: abundance of land, cars, and government incentives made home-ownership very popular. Houses were getting bigger: the small house was on the decline throughout most of the century, while the number of people living in a household decreased by 50% in the years 1881-1991 (Ward)..
...Homes are divided into a multitude of private zones for individual use, and we partake in fewer shared activities. The average new house has expanded in size from about 1500 square feet in the mid-70s to over 2000 (Friedman and Krawitz).. People want more space -- family homes have grown by 50% in size over the last twenty years. Sizes of lots are decreasing, as sizes of homes are increasing.
The median size for a new single family home in 2003 was about 2300 square feet (National Association of Home Builders)..." M.K. Mason

[jaydub]

Naj,

None of this is relevant and the logic continues to be terrible. However that doesn't matter.

It's simple really, if you live in a major metro area you will have seen that the 1970s SFH is selling for about double now than it did prior to 2000. Same size but maybe with some sweet granite counter tops and a subzero fridge.

J

[ilikeaces86_]

This is a very interesting thread. Keep any and all info coming guys.