Fascinating chart showing the total level of Equity in Household Real Estate from 1952 – 2009.
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Source: Bianco Research
While yesterday's US stock market close was poor, Asia and Europe didn't follow today as debt in Greece, Spain, Portugal, etc... rallied, their CDS narrowed and stocks bounced. The Greek finance minister said January tax revenues came in above expectations and that spending was below target for the month and said "that means the deficit reduction for January is well within what we have promised." The euro is rising in turn. Also helping is the story that Trichet is headed to the European Union leaders summit a day early in order to address Greece's problems even as the Greek finance...
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June 25th, 2009 at 12:09 pm
Excuse my cynicism, but how in the heck could household equity ever be accurately derived? It actually couldn’t.
June 25th, 2009 at 12:10 pm
This should be logarithmic Even so, there would still be a big bump on the right side. It looks like it’s approaching normal, although it still has a trillion or two to go.
June 25th, 2009 at 12:13 pm
Karen,
Here’s how:
Macroeconomic estimate of total US CURRENT value of household real estate less estimated total value of mortgage encumbrances.
June 25th, 2009 at 12:25 pm
Off topic.
If there’s anyone out there who still believes in “buy and hold” investing, he/she should read Mish’s post (today) on this topic.
June 25th, 2009 at 12:26 pm
Gee how’s the ride downhill for most people that bought after 2002.
Still think 1997 prices is the settling point.
June 25th, 2009 at 12:28 pm
Wow, you can sure tell when we went off the gold standard. How about the price of a house in gold?
June 25th, 2009 at 12:52 pm
… current value of household real estate …
Do we mean current value or current selling price?
June 25th, 2009 at 1:02 pm
OK, gang, I thought the unemployment numbers today were awful. It appears to me that they may be reaccelerating. We’ve also seen mass layoffs have begun to rise again, now at their high once again, and the numbers from Europe and Japan really still stink. New industrial orders for the Eurozone were down more than a full per cent today too. Mish also posts, DL, that of 3.5 million new jobs in the last 10 years, 2.5 million of them were in the public sector and 1 million were private jobs…
… market is up today…markets go up and they go down. But this economy is not recovering. Unless you are a bureaucrat…
http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx
6/25/09 5 am
June 25th, 2009 at 1:07 pm
DL: Your comment here is very much on topic…it applies to the real estate chart above as well as stocks. I’ve been investing in both since the 1970s…at the time I started the Dow was at 600 and homes could be bought for a small fraction of what they cost today. My own experience and that of others who have replicated what I have done suggests being in sound investments for the long-term, which is Warren Buffett does, pays off handsomely.
Trading sounds good in theory but Mish fails to point out the conflicts of interest and bias of those who advocate. Most who advocate market timing are money managers who claim to have a system to beat the system. This was Cramer’s implicit claim to fame as well. Show me their independently audited track records of success trading over many years, and then I will believe it.
June 25th, 2009 at 1:35 pm
@DH …”still has a trillion or two to go.”
@KM4 …”Still think 1997 prices is the settling point.”
My guess is that it goes back to 1992 level. Then trails to a bottom between 1984 and 1988. (Rounding bottom that takes 4 years or longer.) Theory is based on real estate market not like the stock market and cannot be as easily manipulated.
June 25th, 2009 at 1:40 pm
Kinda tough to guesstimate how far it might decline, at least based on the past history of declines shown in the chart …
June 25th, 2009 at 2:13 pm
Interesting graph I can’t wait to see where it settles.
The comment by EricTyson is BANG ON with respect to trading. Empiric evidence does not support most money manager’s claims (Jason Zweig has cover this extensively). If anyone (including Mish) can provide emprics to back up thier claim then I’m happy to listen, other than that they are simply talking out of thier asses.
June 25th, 2009 at 2:31 pm
Nice chart – more bad news for those of us who did the right thing and are now getting hammered. I bought my house here in LA in 2005 for 390K, I put 250K down. The county just sent me a notice two weeks ago saying that they’ve reduced the value of my home (for prop 13 tax purposes) down to 262K. All that equity, gone.
I wasn’t trying to make money on the house, I bought it to live in it and will keep it indefinitely, my payment is less than a thousand dollars a month so if I move I’ll just rent it out.
Yes, the “loss” is all on paper, but it’s still depressing.
June 25th, 2009 at 3:05 pm
Nice chart indeed- However, I really would like to see it adjusted for inflation, as I think it would be a lot more informative.
Agreed with those above who state that this is going back to mid-1990s. That was the most recent trough. In early 90s I owned a nice 3 bdrm condo in San Diego with a pool in the complex. At the time, they would sit for months on the market at $120k. The worst mistake I ever made was to sell in 1998 when it finally sold for what I had paid for it in 1991- $145k. By 2004 they were up over 400k. Now they are back in the high 200k range.
June 25th, 2009 at 11:07 pm
Qualified is right.
Without being adjusted for inflation, the data are meaningless.
The only thing on earth that is even more meaningless is the news readers that say “the Dow right now is at 8,675,” or whatever. For that to mean anything, one has to remember what the close was yesterday, mentally subtract the latest reading from yesterday’s close, and then mentally divide the current reading by the change from yesterday’s close.
This is a perfect example of all the factoids we are subjected to every day– a very precise number with no meaning. It would be less precise but more meaningful to say something like “The Dow is down (or up) by ABOUT x percent. Stress the word About.
There is also the questions of quantity and quality. When I was a kid 60 years ago, my father was a lawyer for AT&T, then a monopoly. He and his Friends did not think of themselves as lower-class. (Or “middle class,” as Lou Dobbs calls those on the lower 20% of the income scale.)
Everyone’s e house was about 25% to 50% the size of the McMansions they build today. There was only one full bathroom for three bedrooms. No family had more than one car (although it usually was a Cadillac or at least a large Buick.)
Of course, not one of the wives worked. They didn’t have to because no one had told them that every family has to have one car for each person, etc. and a large separate bedroom and bath for each child. So that (assuming the wife was a decent person), unlike today, there was always someone around to take care of sick kids, make hot cocoa in the winter, arrange the flowers, get the cocktails ready for the husband’s arrival on the commuter train from the city, etc.
If you live in New York City, some day go and visit Theodore Roosevelt’s childhood home, which is a national park. Notice that he shared a small bedroom with a sibling. Even the upper classes thought that was perfectly acceptable.
My point being that houses today are much larger than they were in earlier Adan happier times. I widener what the chart would show about pricers adjusted for inflation AND for changes in square feet and amenities.
June 26th, 2009 at 1:14 am
It seems that the graph is not going to settle down for a while because we have tremendous job losses which is hampering our economy. Even though job losses are slowing down but not stopping. We already have lost so many jobs and I guess soon more houses will come to the market because the people who have lost the jobs cant keep paying mortgage payments…..
Government has taken good steps but they arent helping.
http://www.housingnewslive.com/is-the-housing-market-recovering.php
I am sure that the market will still slide down…What do you guys think?
June 26th, 2009 at 7:40 am
Have anybody URL on Picture of “Equity in Houshold” chart but weighted with inflation index?
June 26th, 2009 at 9:02 am
Graph meaningless without adjustment for inflation [as mentioned by some above] but ALSO population growth.
Agree totally that people are bombarded with factoids that are at best meaningless and at worst cause poor decision making
June 26th, 2009 at 9:43 am
[...] Other The level of equity in household real estate (graph): http://www.ritholtz.com/blog/2009/06/equity-in-household-real-estate/ The housing bubble and consumer spending: [...]
June 26th, 2009 at 10:49 pm
Lots of good comments about inflation, one minor (perhaps obvious) thing to add:
Where you think this settles should have a lot to do with your outlook for inflation. If we wind up with high inflation then current prices might be real deal. We could see this chart rebound a lot.
Of course if we wind up with prolonged, widespread deflation, then throw in the towel now.
June 27th, 2009 at 11:03 pm
Now Factor in that unsecured consumer credit card debt is almost one trillion dollars in the U.S. and that interest rates are approaching 30% on that debt and that begins to tell the tale of what is really going on.
Credit Card debt that is older than three years should have all interest charges waived for those who are trying to pay down their debt. This would almost instantly begin to cure many economic ills.
http://www.daily-protest.com
June 30th, 2009 at 10:00 pm
[...] Bianco Research (via The Big Picture), June 25, [...]