The scariest graphs of the month

Real Estate’s Gold Rush Seems Gone for Good
[Via NYT > Home]

Many economists believe that the days of banking on an asset that could only rise in value are gone for good.


Now this may just be the same old stuff people always write. Six months from now they will tell us that it has never been a better time to buy.

But what is amazing is that people expect their houses to appreciate 10% a year every year for the next decade. So the price will more than double in that time. Are those people that deranged and out of touch with current housing market conditions?

Kevin Drum gave several reasons for this disconnect with reality. Perhaps they can’t do math and understand what 10% compounded yearly really is or they do not understand inflation.

But the scary thing is he added a chart based on data from the economists quoted in the NYT – actually from a book one of them wrote. It shows the relative price of houses with inflation taken into account.


Nothing in the last century matches what happened to house prices the last decade.

As you can see, the price of housing in the US stayed pretty stable except for two periods – the 20 years after WWI and the last 10 years or so. For housing prices to return to their historical norm, they would have to come down almost 50% from their highs. We are down maybe 30% since the highs so we may have some ways more to go.

Barry Ritholz has an updated figure done by Steve Barry to the end of July 2010.

case shiller

According to Zillow, my house is off almost exactly 37% from its peak. If it drops 50% off its peak, my house will be worth less than it was when I bought it. Counting inflation and it will be worth much less.

One thought on “The scariest graphs of the month

  1. On the other hand, you have had a roof over your head for how many years? On the third hand, you have put many more dollars into it. How does it average out?

Comments are closed.