Housing Prices 03/16/2010
I think its fair to assume that most people would agree that we are not out of the woods yet, but I get the feeling that people are getting ansy... to buy at these 'cheap, cheap prices.' Just how much lower can housing/real estate prices go?? Well, to look at that question, I would like to show a really excellent bit of research done by Ironman at his top-quality blog (PoliticalCalculations). We can look at housing prices related to the past to try to get a handle on this, but the problem is that there are so many factors (inflation, jobs, supply/demand, etc, etc) that it makes it a really tough multi-varient problem to figure out a housing price predictor that works half way decent... In his post (A Better Method for Detecting Housing Bubbles), he says: "But what would be a better method for determining whether house prices might be in a bubble? Is there a way to detect a bubble forming in its earliest stages? We think we've developed a better method, which is in part based upon our observations of age and income driven spending. What we found is that personal spending for housing was a very strong function of personal income. That observation gives us an alternative way to determine how much Americans of a given income spend on housing and given the strong correlation between income and housing expenditures, we can substitute personal income in place of the measure of rent used by the federal government. We can then plot non-inflation-adjusted house prices against that personal income, which would give us insight into not just whether house prices have decoupled from the economic fundamentals supporting them, but when as well. We did just that with median house prices and median household income in the United States since 1967. What we find from our chart is that the U.S. housing bubble clearly began in 2000, with a distinct deviation away from the two otherwise linear trends that we observe in the data." Click here for the full post WITH graphs... CommentsLeave a Reply |
