Click for interactive chart
Chart
Source: Economist

Category: Digital Media, Real Estate

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.

9 Responses to “The Economist House-Price Index”

  1. MayorQuimby says:

    Another gem. Thank you Barry!

  2. BuildingCom says:

    Based on the chart linked to The Economist, it appears that US housing prices have to fall roughly 35% in order to get back to long term trend. We believe prices are far more inflated than that. Based on current asking prices, housing needs to fall much much further.

    • jbegan says:

      Are you considering the interest rate of between 3.75 and 4.75%? We haven’t seen rates like this since the mid 1960′s. In fact, my first home’s rate was 16.5% with 20% down.

      • BuildingCom says:

        Yes.
        So the question becomes; Were house prices in the mid 60s inflated by 220% as they are now?

        We already know that answer.

  3. rd says:

    It appears that 125% above the historic norms of house prices compared to income and rent are a good indicator that bubble territory has been reached. Prices drop a lot once that value is exceeded. They can go higher than 125% but at that point they are really just Wile E. Coyote waiting for gravity to take over.

    I think the jury is still out on whether or not those ratios are relevant in a developing country housing market since there are so many fundamental structural changes occuring such as rural to urban shifts and wealth accumulation.

  4. sellstop says:

    I understand the connection between rising house prices and people working in the construction industry.
    But what good otherwise is a rising cost of housing and shelter to the American people. Or any people for that matter.
    It used to be that a strong housing market was a sign of a rising prosperity of the middle class. Now it is a sign of increasing indebtedness.
    A strong housing market is the tail on the dog. The dog is the economy. If we just try to artificially make the tail wag the dog is uncomfortable, not content.
    And the dog has to squat once in awhile. And if the tail keeps wagging it makes for a widespread mess.

    Just thinkin’
    again
    gh

  5. Non Sequor says:

    I was hoping to see an index of prices of houses owned by economists.

  6. Brendan says:

    This is missing one critical adjustment – mortgage rates. Average income earners and people considering renting tend to buy houses on payments not with cash! Cash purchases are, for the most part, for the rich and retired.

    For really rough arguments sake, long term 30-year mortgage rates appear to be around 8% and were about that at the start of the graph in 1975 as well (perhaps slightly higher, but close enough). If we say current rates are at 4%, that translates to about a 54% increase in the amount that can be financed for the exact same payment (if 100% is financed in both cases). All things adjusted for inflation and income already, housing prices would be low if they are simply equal. Of course it’s a lot more complicated than that (roughly only half of houses have mortgages – though well more than half of purchases are financed, 100% financing in uncommon – especially now, taxes are probably higher relative to financing costs because of low rates, higher inflation adjusted prices make it harder to come up with down payments, etc.). But, for most, it seems like a 25% increase in price can be more than offset by the reduced cost of financing on the significant chunk of the purchase price that is paid for using a mortgage.

    Now if prices and interest rates both keep going in the same direction they are now, there may be a problem soon. It seems too early to say that now if you consider financing costs.

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