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Heraclitusstudent saysWhat were prices in real term during the 70s?
In real terms it went mostly sideways,
Sideways????
Remove the boom and bust and the picture is clear.
What were prices in real term during the 70s?
In real terms it went mostly sideways, but nobody buys in real terms. I assume when people say prices will fall, they are talking nominally.
Sideways????
Remove the boom and bust and the picture is clear.
When interest rates rise, housing prices fall in real dollars.
1. When mortgage rates increase house prices fall.
What rates cannot change is the scarcity of housing.
Housing is practically free in the states.
.
Except they don't. Look at the 70s in the above chart.
Bingo, this is the basis for my argument. Basically price meets demand. If housing is not being built, prices will rise rise regardless what rates are or do as long as enough incomes rise.
The chart doesn’t include the rates but I see the pattern. The late 70s show a decline. I never said there wasn’t a lag, the graph clearly shows a relationship in price to interest rates in general. Even the fluctuations correct with time.
The late 70s show a rise in real home price index from ~75 to 90 while interest rates were going from 9% to 16%. There is no decline there so I'm not sure what you're looking at. The decline starts when the US goes into recession in 1980.The 70's was an aberration, plagued with hyper-inflation compared to previous decades. For instance, automobile prices, the biggest expense before a home, increased 110% between 1970 and 1980--it had been about 13% between 1960 and 1970. The same huge increases were observed in the housing market of the decade. The double digit interest rates finally choked off runaway inflation, but at the expense of one of the worst recessions in the postwar era after the one of 1973-1975, so there was no place for the prices to go but down once inflation was reigned in.
The 70's was an aberration, plagued with hyper-inflation compared to previous decades.
Point is: don’t write off housing as too expensive because traditional metrics don’t work on it. In places where it’s scarce, people will find a way to buy.
Point is: don’t write off housing as too expensive because traditional metrics don’t work on it. In places where it’s scarce, people will find a way to buy.
The late 70s show a rise in real home price index from ~75 to 90 while interest rates were going from 9% to 16%. There is no decline there so I'm not sure what you're looking at. The decline starts when the US goes into recession in 1980.
Point is: don’t write off housing as too expensive because traditional metrics don’t work on it. In places where it’s scarce, people will find a way to buy.
Its damn if you buy and damn if you rent.
Here is this decent house in Detroit, MI for 8,500 bucks -5 bedroom 2 bath!
Does need TLC, windows-, back taxes etc-but can find plenty of these homes there?
Strategist saysPoint is: don’t write off housing as too expensive because traditional metrics don’t work on it. In places where it’s scarce, people will find a way to buy.
There is also that phenomenon. It used to be that a couple would buy a three bedroom house and have children. Now a three bedroom house can be a three family house of couples with maybe one child in the house.
I said in a different part that there is lag. People don''t just sell a fixed rate house when interest rates rise, but when they do go to sell it affects it on the demand side, just like the graph shows.
If I am wrong, then why did the government start lending money at zero to sustain home prices? Inflation has led to home prices being slightly higher than the last bubble but if interest rates go back to 8% with all things being equal, I would bet that houses would fall by 50%.
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