In 2006, just as the Housing market was peaking, the NYT ran this graphic of the 100-year Case Shiller chart. It showed how radically overvalued Housing had become.

Two years later, TBP reader Steve Barry updated that graphic, including the projected Home Price mean reversion. (See versions for 2008, 2009 and 2010).

Its time to update this for 2011. Note the 2009 tax credit wiggle:

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click for larger version

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We plan to keep updating this annually until that mean reversion to fair value is achieved.

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Note: This chart has been liberally copied without identifying either the source or author. If you see this elsewhere on the intertubes, you should recognize that it was created by Steve Barry, and is originally published here at TBP.

This chart may be reproduced freely if appropriate authorship/publishing credit is given.

Category: Real Estate, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

49 Responses to “Case Shiller 100 Year Chart (2011 Update)”

  1. Jo says:

    Nice chart – thanks.

    I know it’s adjusted for inflation but I’d love to see a log version.

  2. BennyProfane says:

    The American public, or, an awful lot of them, still don’t get it:

    http://pewsocialtrends.org/2011/04/12/home-sweet-home-still/

    Watch for a lot of 4 sale signs to pop up on lawns soon, and disappear in a month or two this selling season. “What, this thing is worth at least 600 grand, and not a penny less!”

  3. also, it’s interesting to hear, far too frequently, those that opine: ~”Housing(prices) should firm ‘in the next couple of Quarters’…we’ll be through ‘working off the Inventory’…continued Job Growth will provide a Bid..”

    Good Gravy! If I wanted ‘bed-time’ Stories, I’d rather http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Grimm%27s+Faerie+Tales
    ~~

    past that, nice work by Steve Barry.

  4. bulfinch says:

    Wha….you mean the bottom wasn’t in in 2009?

    Here in Austin, housing has gone from insane back down to just silly.

  5. bmz says:

    I’m not sure if this chart doesn’t miss the rising “true” value of close in locations in growing urban areas.

  6. bmz says:

    I would like to see a least squares trend line of the data.

  7. furiouschads says:

    This looks pretty inflationary.

  8. curbyourrisk says:

    BR: 7 months ago I said we had another 30% downside in housing and you politely told me I was nuts.

    What exactly is that chart saying???? Are you jumping on the housing is not done bandwagon>??????

    furiouschads……..INFLATIONARY??? If anything it is stagflation at best. Housing assets continue to be a deflationary pressure on an economy where WHAT YOU NEED TO BUY is being forced by the invisible (BEN BERNANKE) hand higher for the good of the coutnry. You need to spend more save the economy…..or some kind of bullshit like that.

    ~~~

    BR: I do not recall saying you were nuts — but I have been saying homes (as measured by median income to median home price) are anywhere from 5-15% overvalued.

    (Do you have a link to that ?)

  9. BennyProfane says:

    And somebody tell me how the “starter” home market (isn’t that a product of the ponzi mentality of the 90s to ’06 – starter – move up – dream MacMansion?) will strengthen with student debt now at a trillion dollars and rising by the minute as the higher education bubble mimics the burst housing bubble. We now have a generation of kids starting adult life who may never be able to pay off their student debts before age 65 unless inflation just goes parabolic, or they all get hired by Goldman.

  10. super_trooper says:

    Size does matter.
    At the beginning of the last century, the average home was 700 to 1,200 square feet.
    Sure things were different at the beginning of the century.
    This plot does not take into account that between 1995 and 2005, the size of a typical new home increased nearly 20 percent.
    I would like to see this plot adjusting for median house size. I think this would be fairer representation when contrasting the last ~20-30 years.

  11. rktbrkr says:

    So housing prices are 2/3 way thru their roundtrip assuming 1)they don’t undershoot on the way down,2) banks don’t accelerate their shadow inventory sales, 3)mortgage rates don’t rise from their recent record lows,4) local govs don’t raise property taxes to cover rev shortfalls 5) federal gov doesn’t mess with the mortgage deduction to cover rev shortfalls.

  12. Lugnut says:

    Off topic:

    Barry, I saw you got a brief shout out in Matt Taibi’s latest rail against Wall St in RS, this time he’s tilling against the the ‘shadow budget’ of the Fed’s various non-recourse loan facilities, to anyone and everyone who didn’t need it, namely already well to do folks.

  13. Lugnut says:

    sorry forgot link for any interested.

    http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411?page=1

    basically, he’s railing against the abuse of TALF by connected parties.

  14. Lyle says:

    The chart sort of puts the lie to the concept of a house as a good investment outside of booms the price is fairly constant.

    I suspect there is a second factor in the decline in the 1910s and 1920s the automobile, thereby increasing the supply of land for homes. Yes the electric street car had added areas to the suburban fringes of towns, but the distance one could build away from a streetcar line is limited to basically walking distance. With the coming of the auto the areas between the typically radiating lines in the outskirts of cities could be filled in, as well as going past the ends of the street car lines.

  15. Ted Kavadas says:

    thanks for posting…

    I would be interested in knowing the logic behind the “projection” (red dotted line)

    Also, for those interested, I recently summarized the consensus of the MacroMarkets March Home Price Expectations Survey (~100 respondents):

    http://economicgreenfield.blogspot.com/2011/03/macromarkets-march-2011-home-price.html

  16. louis says:

    You still have those that have yet to default.

  17. KJ Foehr says:

    DC / N Virginia / Maryland are next to take a hit, imo. It’s still a highly overvalued market and has been pretty much immune thus far due to government and its spending. Obviously that is changing as we speak.

  18. Mike C says:

    Two years later, TBP reader Steve Barry updated that graphic,

    I wonder what ever happened to that guy. Very smart guy no doubt, but last time I recall he was still holding on to inverse market ETF position. I think that was early 09 around S&P 900. I can only imagine how far down that position would be now at 1300. FWIW, I’m still holding on to a small hedge position in SDS established around 1040 but it is less then 10% of the portfolio. I can’t even imagine the carnage if I had been 50, 75, or 100% in that the last 2 years.

    I’ve been in this game now 15 years since finding the stock market after college at 21 years old. If there is absolutely one thing I’ve learned that is more important then anything else it is to have specific definable metrics to DEFINE THE TREND and never ever ever ever take big strategic positions against the trend. Whatever you think the “true fundamentals” are the market will have a way of making you look really stupid and taking your money. Although it is cliche, the truth really is “the trend is your friend”

  19. [...] is an updated version of Case-Shiller’s housing index for the country. (The source for the updating and the image is The Big Picture and TBP reader Steve Barry.) It is of course [...]

  20. brennan says:

    You can clearly use this sort of pseudo-logic on all sorts of things…try plotting gold, or healthcare, or long distance telephony, or computers, or all sorts of things on this simple sort of inflation adjusted scheme. Explain the resultant weird story. Or put a big statement on top of the chart saying what you mean: Housing does not improve in quality and is a cash only purchase. That is what is implied by posting this chart and the attendant statements, so say it if you mean it. And if that isn’t what you really mean, then please explain, as I cannot see how you manage that logical contortion.

    Here is my attempted logic (complaining is too easy). It has holes too, but I am trying to be reasonably self consistent.

    Historically, spending on housing should be ~30% of income. This makes for a more complex set, and ends up being a track of outstanding loan. But, assuming about 20k in expenditure, that is ~1600/month. Average loaned amount will be 200-300k (15 year at ~200k, 30 year at ~300k).
    Assuming a LTV is about constant at .6, then the average price of a house should be ~300-450k. Thus, houses today are really cheap, but will be really expensive if rates go up…luckily, we have 15-30 year loans.

    All interest rate driven. This is our distorted system. It is a bad system, that present huge systematic risks to the banking system from inflation.

    If spending is the issue, track spending. If all prices are mean reverting in one sense or another, then try applying that analysis directly. I tend to believe that percentage spending is somewhat more stable, but even that changes. We spend less on food today, for good reason. Asserting that housing should be both immune to percentage spending shifts as well as the only commodity that will track CPI directly is pointlessly naive. So lets make better charts. This one is pointless.

    bp

  21. wally says:

    brennan, don’t let Barry troll you like that. Just ask him to draw in that ‘mean’ line he is talking about and let time tell what it tells.

  22. [...] is an updated version of Case-Shiller’s housing index for the country. (The source for the updating and the image is The Big Picture and TBP reader Steve Barry.) It is of course [...]

  23. luckydog says:

    There are a few things that will work against the “revision to the mean” . As mentioned above the size of the house has gotten bigger, the other big ones are the changes in the construction codes, higher permitting fees and the “Growth Management Policies” in many states that artificially constrains land available for housing. On the Left Coast each state has a growth management policy and the last in depth research paper that I saw (put out by U of W some years ago) was that those policies had added between $50,000 and $80,000 to the cost of the house (depending upon localation and the restrictions). The actual cost of construction is down over the last 20 years but with code mandated changes, higher jurisdictional fees for permits and constrained land which effects both the cost and lead time to create a buildable lot the overall costs are up significantly. These are some of the things that were hidden in the bubble.
    At least where I live once these distressed houses / lots are gone the replacement cost will be much higher than where we are at even currently. We already seeing rents increase as household formation numbers start to revert back towards the mean.

  24. dougc says:

    The stated goal of QE 2 was to increase asset values including housing prices, instead they created a situation where dollar weakness contri buted to rising raw material and food prices. This influences potential first time home buyers. They see the price of , food, energy and clothing rising resulting in less disposable income to use to buy a home. Therefore the prices must fall until they are affordable which is difficult if wages are stagnant .

  25. DeDude says:

    There are many different ways whereby you can continue that nice smooth curve in a nice smooth way. I am not sure I get why we would expect a leveling out at 105 by 2016 rather than a leveling out at 125 by 2018. Line-drawing is always very seductive, but unless it is based on a solid model, then it’s just line-drawing.

    As people get richer they will spend less of their income on basic survival and have a lot more discretion to decide what specific area of their life they to indulge with the “excess” income. In 1890-1915 they spend 90-100 Shiller units on housing, then the depression and WW2 drove it down to 70-80 Shiller units. After the war until about 1975 it was 100-110 Shiller units, and then it rose to 110-120 Shiller units until we went nuts in 2000.

  26. Lookout Ranch says:

    I’m a little skeptical of that chart. Unless the economy just completely craters again in a big “double dip,” I don’t think we will see house prices drop by another third.

    At the lower end, especially, prices are already fairly close to historical rent/buy ratios.

    However, I think we could see continued softening of prices for homes in outlying areas and for mcmansions due both to economic factors (gas prices) and demographic trends (older people looking to downsize and simplify).

  27. redline21 says:

    Russ Roberts schools Barry.
    http://cafehayek.com/2011/04/the-housing-boom-and-bust-part-2.html

    ~~~

    BR: When one considers home prices, there are many other factors that need to be looked at.

    One should also adjust home prices for size — homes square footage shot up tremendously from 1995 to 2007, for Inflation (we had a huge inflationary surge from 2001-07, as the dollar collapsed 41%) and for Quality (high end materials and appliances migrated from the most expensive homes through to the top 30%.

    Keep in mind as well that the the mid 1990s were well into the 2nd decade of the world’s greatest bull market. Many investors pulled winnings off the table in the 1990s and rotated some assets in to Residential Real Estate — i.e., buying bigger homes (this is a anecdotal, but well known amongst RE agents and others).

  28. [...] ran a graphic outlining the Case-Shiller home price index over the previous 100 years. In 2008, Steve Barry updated the graphic to include more recent versions including the “projected Home Price mean reversion” [...]

  29. andrewp111 says:

    One must be careful. The chart is inflation adjusted. We can mean revert by a 20% drop in nominal house prices or by a 20% general inflation. But debt owed is NOT inflation adjusted. A 20-30% inflation would put an awful lot of debtors above water, and allow them to sell their underwater albatross.

  30. andrewp111 says:

    I know someone who did just that. He had huge (and heavily margined) winnings during the tech bubble, and he put a contract on a big new house in 2000. When the value of his stock account dropped down to the contract value, he was forced to sell everything. He was glad he did, because the bubble stocks kept dropping and dropping. If he didn’t have that contract on that house, he would have hung on and lost everything.

    “BR:……..Keep in mind as well that the the mid 1990s were well into the 2nd decade of the world’s greatest bull market. Many investors pulled winnings off the table in the 1990s and rotated some assets in to Residential Real Estate — i.e., buying bigger homes (this is a anecdotal, but well known amongst RE agents and others).”

  31. dz says:

    So when is the next “Decline and Run-up” stage?

  32. [...] Case Shiller 100-year chart seems to indicate that the nation’s housing correction (i.e. falling prices) has a way to go [...]

  33. [...] is from Steve Barry ( via Barry Ritholtz’s Big [...]

  34. I think the important question here is whether the median price will just revert to the mean, or plunge right through it. If it bottoms out at the mean, it would be the first bubble–>crash to do so.

  35. [...] for housing prices in the USA from 1890, updated in 2011 by Steve Barry  for The Big Picture. Note the effect of the 2009 tax credit for new home [...]

  36. [...] Case Shiller 100 Year Chart (2011 Update) [...]

  37. marksf says:

    There is a huge problem with the “100 year” chart, that implies tracking of inflation over the long term: The methodology pre-1986 had almost nothing to do with the more rigorous “same home sale” methodology of the post-1986 data.

    The methodology1953-1986 was just looking at government statistics for similar housing (based on size and amenities), but made ABSOLUTELY NO adjustment for location. So in major metropolitan areas, the “median” home moved away from the center of the metropolis over time. Quite dramatically in high growth areas like CA. It has nothing to do with “same home”.

    http://online.wsj.com/article/SB124051414611649135.html

  38. harrysteed123 says:

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  39. [...] Home prices are projected to continue falling somewhere between an additional 20 to 30 percent – meaning even more will go under [...]

  40. [...] Case Shiller 100 Year Chart (2011 Update) | The Big Picture. [...]

  41. bfwebster says:

    Some good comments and criticisms here, but the real question (IMHO) is: who here expects to see the home value value hit 200 again anytime soon? Looking at the past 15 years or so on this chart, I’m reminded of the tech bubble, which ran NASDAQ up to 5200, crashed it down to 1114 over two years, and has yet to go back above 3000 in the nine (9) years since that low point. We can argue when that dotted red line on the home value chart will level off or even turn back up again — but how far will it go up, ever? Especially with adjustments for inflation? Or will the next 50 years simply look like the 1950-2000 chart, but with a somewhat higher baseline (e.g., 120-130)? ..bruce..

  42. [...] For the last 120 years, housing prices barely kept pace with inflation. The last 30 years haven’t been any better, once you include the ugly numbers from the last five or six years. So how could an asset that barely kept pace with inflation be the best investment someone ever made? [...]

  43. [...] analyst Barry Ritholtz has posted a graphic on his blog The Big Picture, illustrating the history of home values going all the way back to 1890, with the data adjusted for [...]

  44. [...] analyst Barry Ritholtz has posted a graphic on his blog, The Big Picture, illustrating the history of home values going all the way back to 1890, with the data adjusted for [...]

  45. [...] of over 30 years was their best investment. This belief exists despite the fact that home values barely kept pace with inflation. How can this be, given that during the same time period average annual returns in various stock [...]

  46. [...] over 30 years was their best investment. This faith exists notwithstanding a fact that home values barely kept gait with inflation. How can this be, given that during a same time duration normal annual earnings in several batch [...]

  47. [...] prices are still falling because the homebuyer's tax credit inflated housing demand last year. See this graphic on Barry Ritholz's [...]

  48. | says:

    [...] analyst Barry Ritholtz has posted a graphic on his blog, The Big Picture, illustrating the history of home values going all the way back to 1890, with the data adjusted for [...]