Home Prices Are Back... To 1894's Levels

Tyler Durden's picture




 

Six years after the onset of the traumatic US housing crisis, the optics are there that suggest a stabilization is occurring. Whether real or manufactured by record-low foreclosures, bank supply withdrawals, and fed-subsidized cash REO-to-rent trades, the sad truth is that jobs (and the GDP-enhancing multiplier effect that they create) are just not coming. Even Bob Shiller prefers the potential for 4% gains in stocks over housing risk in the medium-term as he points out that - inflation-adjusted - house prices are back at levels first seen in 1894... now that is a long-term investor.

 

 

Source: Goldman Sachs

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Thu, 02/14/2013 - 00:36 | 3242177 Never One Roach
Never One Roach's picture

<<The rule of thumb Ive always used is $10k in home value per 100 bps swing in rates.>>

 

I think that works for houses under $200k to $300k but when you get higher up the drop per percentage hike in rates will be much greater....plus there will be a ripple effect (aka more hsock waves) that drive prices even lower as Shiller describes in one of his books.

Thu, 02/14/2013 - 01:07 | 3242251 trillion_dollar...
trillion_dollar_deficit's picture

Definitely. The $10k is probably a good floor number.

Thu, 02/14/2013 - 02:05 | 3242336 socalbeach
socalbeach's picture

During the 70's both home prices and interest rates increased substantially.

http://research.stlouisfed.org/fredgraph.png?g=fzr

Thu, 02/14/2013 - 10:28 | 3242872 Seer
Seer's picture

This is 2013.  The Fed is buying real estate because there's no market, unless, that is, they want to completely blow out the bottom.

Thu, 02/14/2013 - 00:18 | 3242132 Glass Seagull
Glass Seagull's picture

Bernanke: "Ha!!! Real home values are meaningless, inflation counts!!"

[as his eyes dart nervously to the place on his bookshelf dedicated to books about inflation-adjusted housing performance through history]

Thu, 02/14/2013 - 00:19 | 3242133 Glass Seagull
Glass Seagull's picture

.

Thu, 02/14/2013 - 00:22 | 3242144 besnook
besnook's picture

and there you have the proof you need to show the real price of real estate tracks inflation(wages) the way it should over the long term. the safe place to buy is on the equilibrium line to lock in present value dollars over the term of ownership hedging against future inflation.

what is interesting about this chart is the dump in value real estate took immediately upon the establishment of the fed that didn't recover until the ww2 boom. does that mean the fed failed initially in its mission to pump assets except for the leveraged induced stock market boom and the florida real estate boom of the 20s(popped in 1926).

Thu, 02/14/2013 - 00:22 | 3242145 moonstears
moonstears's picture

So a house is now $400? Where, fucking Detroit "moto citeee, bitchez"? Even in silver that's $10K. Agree that's where we need to be($10K) but not realistic, YET.

Thu, 02/14/2013 - 00:30 | 3242163 lolmao500
lolmao500's picture

It needs to go back down a whole lot more.

Thu, 02/14/2013 - 00:30 | 3242164 GrinandBearit
GrinandBearit's picture

Another RE bubble is blowing, especially in cities that got nailed in 2006-2009

It's hard to believe, but some areas of So Cal are back their 2006 bubble top prices.  Flippers, rich foreign (mainly Asian) buyers, banks holding back inventory, FHA loans, low interest rates and slimy RE agents are all fueling this new bubble.

It appears that NO ONE has learned any lessons from a few years ago. 

It's truly fucking bizarre.

Thu, 02/14/2013 - 00:51 | 3242215 devo
devo's picture

That's the moral hazzard. It isn't bizarre at all. What is bizarre is that reinflating the housing bubble is Bernanke's best idea.

Thu, 02/14/2013 - 01:01 | 3242239 GrinandBearit
GrinandBearit's picture

The Fed really has no other choices.

Thu, 02/14/2013 - 11:44 | 3243118 MeBizarro
MeBizarro's picture

Yup.  They have to keep the banks and local gov'ts solvent.   Really a series of bad options all around and I understand why Bernanke has been doing it even if it has some horrendous side effects both short-term and long-term. 

Thu, 02/14/2013 - 01:58 | 3242331 Vendetta
Vendetta's picture

Indeed.  I don't see a single true fundamental factor accounting for 'recovery' of insanity.

Thu, 02/14/2013 - 04:30 | 3242442 chubbyjjfong
chubbyjjfong's picture

+1.  We all know there is more money floating around now than ever before.  Those elite fortunate enough to have 'shit loads' sitting on the sidelines are certainly not investing it in the stockmarket.  Where are they likely to put it?  The first place is high end property that they, or their children, may some day like to live (or survive).  Its the same the world over. Isolated pockets of insanely inflated real estate totally contradicting all logic.  The beginnings of inflation perhaps? Not long before they turn their financial attention to the shit we all need.

Thu, 02/14/2013 - 01:08 | 3242254 cherry picker
cherry picker's picture

This is bull shit.  In 1894 many people built their own homes, not like today.

They couldn't get mortgages like today to my knowledge.  I they could get a mortgage it was for the priveledged few.

It is almost impossible to compare homes from that era and equate it to a salary to today as the homes for most middle class were not the 2-3 thousand square foot castles prevelant in so many places today.  How do you equate a blacksmith's, carriage builder or typesetter's salary to one of today?  Those vocations are mostly extinct.

Thu, 02/14/2013 - 01:56 | 3242325 Vendetta
Vendetta's picture

I think the golsmiths' of yesteryear were doing the same game the Blankfein's of the world today are doing, the names have changed to protect the guilty.

Thu, 02/14/2013 - 06:53 | 3242518 MisterMousePotato
MisterMousePotato's picture

In the early 1900s, my first wife's grandfather moved to the United States from Italy. He bought a lot (quarter acre? probably less) in Cranston, Rhode Island.

He got a shovel and started digging a basement/foundation.

House was still there last I knew. It was a nice, typical for the era house.

Thu, 02/14/2013 - 11:46 | 3243127 MeBizarro
MeBizarro's picture

Few very people built their own homes in 1894 because just as today they lacked the skill sets, tools, and knowledge required. 

Thu, 02/14/2013 - 12:22 | 3243285 cherry picker
cherry picker's picture

In my youth and later into my twenties in Canada, many of us built our own homes.  We hired tradespeople for the stuff we couldn't do.  The house I built on five acres in 74 is still standing and wuite nice to look at.

 

The reason we did this?  We couldn't afford to purchase from a "developer".  Don't forget, a far larger portion of the population did not live in urban areas like they do today and even in urban areas, laws not as stringent as today.  A person could built quickly and easily with the help of friends and family.

Thu, 02/14/2013 - 01:09 | 3242255 CuriousPasserby
CuriousPasserby's picture

Home prices can stay the same for 100 years but if you are netting $500 or $1000 from the rent you collect every month, on every house, year after year, you are doing good. I know people who don't work other than minor fixups, and collect $5000 a month in rents.

Thu, 02/14/2013 - 01:09 | 3242260 steve from virginia
steve from virginia's picture

 

 

$100k in 1890 would purchase a palace, not a house. An ordinary 4-6 room single family house in any US city or town would cost about $1000 to build ... or less.

 

The same $100k house today would be worth hundreds of thousands or millions today:

 

http://www.historicproperties.com/results.asp

Thu, 02/14/2013 - 14:16 | 3242543 Mi Naem
Mi Naem's picture

I refer to my previous statement to you: http://www.zerohedge.com/contributed/2013-02-06/money#comment-3220723

I am still glad that you are not "in charge". 

 

I also refer to the article that seems to have been written about you: http://www.zerohedge.com/news/2013-02-13/23-america-illiterate

graph says "adjusted for inflation"

Thu, 02/14/2013 - 09:41 | 3242736 Lucius Corneliu...
Lucius Cornelius Sulla's picture

The house I own was built in 1959 and first sold for $15,000.  Zillow says its worth $350,000.  But average salaries in 1959 were about $5,000/year.  Now they are closer to $100,000/year.  Its all relative.

Thu, 02/14/2013 - 01:33 | 3242264 socalbeach
socalbeach's picture

Housing priced in gold using 2 different Fed FRED housing metrics.

http://research.stlouisfed.org/fredgraph.png?g=fzn

Sorry, housing looks cheap relative to gold, although it depends on location obviously.

Thu, 02/14/2013 - 01:56 | 3242324 alentia
alentia's picture

It is not there yet. Average median historical price of a house in gold ounces =100.

Lowest it was, 80 ounces of gold in US and UK. When house in San Francisco, Chicago (north) or Huston drops to 80 or even 100 ounces it might be good time to buy.(if you still want to live in US)

 

If I remember correctly in 2007 average price for a house in US shoot up to 450 ounces. (And in 2009 Obama started talking about "green shots")

 

In Canada now we are dancing dangerously at 300 ounces of gold per average house, but it is still shy from a bubble.

Thu, 02/14/2013 - 02:50 | 3242348 socalbeach
socalbeach's picture

I got rid of the log scale on the preceding graph, and it looks like 100 oz of gold is the minimum median price (blue line), not the average median price, going back to 1968 (earliest available data on FRED for gold).

http://research.stlouisfed.org/fredgraph.png?g=fzs

Thu, 02/14/2013 - 01:36 | 3242296 Me_Myself_and_I
Me_Myself_and_I's picture

But my house today has running water, electricity, central AC/heat, a pool, and no black widow spiders.

Sorry, but I wouldn't blow two snots for an 1894 home.  

Thu, 02/14/2013 - 06:55 | 3242522 MisterMousePotato
MisterMousePotato's picture

I live in a house built during the War of Northern Aggression. Everyone likes this house.

Thu, 02/14/2013 - 06:57 | 3242523 MisterMousePotato
MisterMousePotato's picture

p.s. Electricity, running water and indoor plumbing, and gas lighting were subsequently added. No pool. No air conditioning. And, yes, we do have black widow spiders. (Man, are they creepy/ugly/scarey or what?)

Thu, 02/14/2013 - 01:49 | 3242311 Vendetta
Vendetta's picture

I'll take the $100,000 house built in 1890

Thu, 02/14/2013 - 01:55 | 3242323 ebworthen
ebworthen's picture

Does this mean I can shoot the crooked Sheriff and homestead 40 acres?

Thu, 02/14/2013 - 02:05 | 3242341 OutLookingIn
OutLookingIn's picture

Absolute "JimCrackery!"

$100,000 in 1898 dollars would have the same purchasing power as one million dollars today!

Thats why during the deflated land prices of the twenties & thirties, the moneyed elite snapped up almost all the good farmland and housing real estate, at bargain basement pricing.

Current housing pricing is not even back to its long term medium. Lower prices to come yet.

Thu, 02/14/2013 - 02:48 | 3242372 gregga777
gregga777's picture

Read the explanatory text in the graph!  

 

It says the dollar values are INFLATION adjusted!  Therefore that 1894 house probably sold for around $2,000, in 1894 dollars, not $100,000 2013 dollars..

 

I think the article about the high level of adult illiteracy in America probably underestimates the problem.

Thu, 02/14/2013 - 09:29 | 3242712 Village Smithy
Village Smithy's picture

Do not take your intelligence for granted my friend. Not everyone is born as capable as you. Use your power for good, not sarcasm.

Thu, 02/14/2013 - 10:20 | 3242841 CuriousPasserby
CuriousPasserby's picture

The really scarey thing is that half the people (and half the voters) have a below-average IQ!

Thu, 02/14/2013 - 02:32 | 3242360 IridiumRebel
IridiumRebel's picture

All I know is that some stupid person is going to buy my house. Offer is made and hoping counter will work as we should break even after taking the fuckhead bait from "da 8 tousand dollAh taxi break"! Dirka Dirka! This was pre-zerohedge and pre access to critical thinking brain. Signing the fucking papers and then I'm out! I'll feel bad when the bottom drops out, but hey, I gotta watch my family's back. 1894....fuck. Fuck You Debt Slavery!

Thu, 02/14/2013 - 04:42 | 3242451 kurt
kurt's picture

Hey, I'm the guy who WAS going to buy your house.

Thu, 02/14/2013 - 04:46 | 3242453 IridiumRebel
IridiumRebel's picture

I doubt it. She is a teacher who is placing a couple 20s down and a promise from Obama via FHA. Fannie and Freddie are totally solvent ya know. I'm out. I'll rent and see what happens.

Thu, 02/14/2013 - 02:39 | 3242367 NidStyles
NidStyles's picture

Well housing prices should go down. It's not like the technology that goes into a house has been drastically improving or anything, and the market is flooding FFS.

Thu, 02/14/2013 - 03:48 | 3242407 socalbeach
socalbeach's picture

Real estate prices don't need to exceed the inflation rate to make money.  Here's a simple example:

Let's say you buy a $300K house and put 20% or $60K down.  Also assume your total payments (taxes, insurance, fixed rate mortgage payment, maintenance, etc.) equal what you would have paid for rent.  In some places in CA, you can still actually buy and have your total payments be less than what you pay in rent because of Fed supression of interest rates  Also ignore any tax advantages you might get by owning.

Then assume prices for everything double and you sell.  For simplicity ignore principle repayment so your loan is still $240K, and also ignore commissions (there are some discount agents you could use, or getting a r.e. license to reduce the commissions isn't that hard).

Then after paying off the loan you would net $360K ($600K - $240K loan), which would be worth $180K after adjusting for a doubling of the price level. So in this hypothetical example you've tripled your money ($180K/$60K).  And if you're married you wouldn't have to pay any Federal income taxes because of the $500K exclusion on the sale of a primary residence.

Like I said this is a simplified example, because prices for everything don't go up by the same amt.  And if you think prices are going to drop in general (price deflation) then you obviously wouldn't want to use leverage to buy a home.  But this is the type of calculation you could do before deciding to buy, whenever that may be.

Thu, 02/14/2013 - 04:42 | 3242452 IridiumRebel
IridiumRebel's picture

This is all fine and well, but these "tax breaks" are gonna be axed soon when CRUSHING DEBT catches up and they go after anything that isn't nailed down. All I see is greedy Füx blowing and bursting bubbles at quicker increments until one final fuckass hits. We are about to(read already have) enter a recession which is going to be a fois gras appetizer to DEPRESSION; real depression. The kind of depression where people are cutting down trees from forests just to warm their homes. 25% youth unemployment depression. That's house ain't gonna be worth shit in SoCal when everyone starts trying to kick us when we are down. N. Korea has its eye on The west coast. I think if you are planning on staying in the same house for 30 years, then locking in at this rate is smart. Otherwise, it better be a killer deal with lots of land.

Thu, 02/14/2013 - 03:45 | 3242410 Sudden Debt
Sudden Debt's picture

I bet houses didn't have airco in 1894...

Thu, 02/14/2013 - 08:03 | 3242568 Tango in the Blight
Tango in the Blight's picture

That's because airco was invented about a decade later.

Thu, 02/14/2013 - 03:58 | 3242421 Dre4dwolf
Dre4dwolf's picture

Dead cat bounce?

Thu, 02/14/2013 - 06:08 | 3242487 e-recep
e-recep's picture

that means we have some more way to go till we reach 1920s levels.

Thu, 02/14/2013 - 06:47 | 3242513 SilverMoneyBags
SilverMoneyBags's picture

How do you see a stablization? Its a very real concept that we could still plunge below the mean.

Thu, 02/14/2013 - 11:58 | 3243175 De minimus
De minimus's picture

Ya Think?

Thu, 02/14/2013 - 09:16 | 3242680 orangegeek
orangegeek's picture

Philly Housing Index (HGX) is or perhaps has completed wave B up.

 

http://bullandbearmash.com/chart/philly-housing-index-weekly-topped-turned/

 

Wave C down is next.  Deflation is picking up momentum once again.

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