Wednesday, March 30, 2016

Housing: Part 131 - The Shiller Real Home Price Index in the Two Americas (Updated)

A while back, when I first started thinking through the implications of the localized supply constraints that now are at the center of my story, I posted this graph of the Shiller Real Home Price Index.  Dr. Shiller discounts that index with CPI inflation.  The idea, I believe, is that over the long term, rent inflation should basically follow general inflation.  In theory, this makes sense.  And, empirically, it was pretty close to the truth except for some unusual rent inflation in the 1970s.  But, since Shiller has developed these tools, we have now had a 20 year period of time with persistently high rent inflation.

Now, if we are trying to decide if home prices are reasonable, it seems to me that, whatever our theory of expected rent inflation, if we have a rent inflation measure, that is the discount rate we should use on a Real Home Price Index.

So, on my first go around with this, I posted this first version of the graph, with my correction.

As you can see, this tames that scary looking monster of a graph quite a bit.  We aren't so much overpaying for homes as we are paying higher rents for them.  The difference between my graph and his graph is basically a measure of the transfer of wealth we have made to real estate owners in Closed Access cities.  About 1/3 of the value of our residential real estate was just a winning lottery ticket for people who happened to own property in places where policy makers became more dysfunctional during their tenure.

But, even my version had a sizable hump in 2005.

Now that I tend to think of these things more locally, it occurred to me that this measure really should be local.  A few cities have Case-Shiller home price indexes and CPI Owner Equivalent Rent measures that go back at least far enough to capture the housing boom period.

Here, I have added three cities to the graph: San Francisco, Dallas, and Atlanta.


For 3/4 of the country, irrational or unsustainable prices should not, and never should have been, part what buyers are concerned about if they are deciding to buy a home.  It is simply not relevant.  Dallas and Atlanta and a hundred other cities have never even remotely moved out of the long term range of home prices.  There is nothing to see here.

And, San Francisco isn't hitting the top of the chart because of irrational buyers.  It's hitting the top of the chart because there is no end in sight to its dysfunctional housing market.  Rents will keep rising until it is fixed.  The reason a buyer has to pay so much for a home in San Francisco today is because they have to assume that rents 10 or 15 years from now will be double what they are today.  The market failure would be a market where Price/Rent in San Francisco was not any higher than in Dallas.

Buyers in San Francisco aren't banking on the irrationality of the housing market.  They are banking on the irrationality of San Francisco housing policy.  They really have no choice.  The San Francisco Board of Supervisors forces real estate owners there to be wild speculators on the autocratic tendencies of the San Francisco electorate.  The Supervisors really have no choice either.  You get elected in San Francisco for referring to those beautiful, easy Dallas and Atlanta price trends as "trickle down economics".  In San Francisco, you get elected by showing concern for high rents, not for solving them.  75% of the country knows how to avoid rising rents.  It must not be that difficult.  It's just not how to get elected in San Francisco.

Meanwhile, Robert Shiller, the great economist who has made these wonderful tools available to us, has spent the last 15 years warning people in Dallas and Atlanta about bubbles.  And people post pictures of his scary blue line to explain how out of control markets are.

PS:  By the way, do you notice that really long period of stability in home prices before the 1970s?  Do you think we got that through macroprudential management?  Through tight controls on home building?
No.  We got it by building and lending.  There was consistent growth in mortgages as the New Deal housing policies were implemented.  California was growing by 3-5% per year, and real private fixed investment was growing by 5-7% per year.  You want stability?  Let's try that again.  (Ironically, lenient lending and building policies would lead to declining mortgage levels because real estate values would fall.  Open access is the sustainable policy regime.)

81 comments:

  1. Great post. As baseball season is nearly upon us, I will say, "You have hit it out of the park!"

    ReplyDelete
  2. Atlanta still experienced a massive foreclosure episode, as people still could not afford the houses but by easy money loans that failed.

    ReplyDelete
  3. The idea, I believe, is that over the long term, rent inflation should basically follow general inflation. DLF park place

    ReplyDelete
  4. Fantastic blog! Do you have any more tips to improve home lighitng? I’m also planning to start my own home improvement blog soon but I’m a little lost on everything.
    Would you suggest starting with a free platform like Wordpress or go for a paid option? There are so many options out there that I’m completely overwhelmed ..
    Any tips? Kudos hamptonbay

    ReplyDelete
  5. It is my first visit to your blog, and I am very impressed with the articles that you serve. Give adequate knowledge for me. Thank you for sharing useful material. I will be back for the more great post. click aquí

    ReplyDelete
  6. Very informative post ! There is a lot of information here that can help any business get started with a successful social networking campaign ! backsplash kitchen tiles

    ReplyDelete
  7. So, some agents now limit the services they offer and change their fees accordingly. An agent may offer to advertise the property in the MLS but only provide limited additional services. singapore developer

    ReplyDelete
  8. Although serious supply-demand imbalances have continued to plague real estate markets into the 2000s in many areas I sell homes

    ReplyDelete
  9. This is such a great resource that you are providing and you give it away for free. I love seeing blog that understand the value of providing a quality resource for free. Real Estate Photography Brisbane

    ReplyDelete
  10. This is also a very good post which I really enjoyed reading. It is not every day that I have the possibility to see something like this.. Realtors claremont

    ReplyDelete
  11. A significant thought is atmosphere that must be cultivated in house building to be sufficiently able to remain against floods, storms, extreme warmth, freezing temperatures, and other exceptional climatic conditions. The establishment of a home should be steady. Local builders

    ReplyDelete
  12. I would like to say that this blog really convinced me to do it! Thanks, very good post. blue world city islamabad

    ReplyDelete
  13. Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with extra information? It is extremely helpful for me. House Hacking Case Studies

    ReplyDelete
  14. However, homeowners avoid a cosmetic change because of the time involved. Home renovation projects are notorious for being time-consuming and expensive. But, do not lose heart. disinfecting for covid using clorox bleach and lysol

    ReplyDelete
  15. Thank you because you have been willing to share information with us. we will always appreciate all you have done here because I know you are very concerned with our. best real estate agents

    ReplyDelete
  16. I wanted to thank you for this excellent read!! I definitely loved every little bit of it. I have you bookmarked your site to check out the new stuff you post. property developers in dubai

    ReplyDelete
  17. Thank you because you have been willing to share information with us. we will always appreciate all you have done here because I know you are very concerned with our. quadcopter

    ReplyDelete
  18. rental loans, Really I enjoy your site with effective and useful information. It is included very nice post with a lot of our resources.thanks for share. i enjoy this post.

    ReplyDelete
  19. orea forms explained, We are really grateful for your blog post. You will find a lot of approaches after visiting your post. I was exactly searching for. Thanks for such post and please keep it up. Great work.

    ReplyDelete
  20. Interesting topic for a blog. I have been searching the Internet for fun and came upon your website. Fabulous post. Thanks a ton for sharing your knowledge! It is great to see that some people still put in an effort into managing their websites. I'll be sure to check back again real soon. Sobha windsor price

    ReplyDelete
  21. I have read all the comments and suggestions posted by the visitors for this article are very fine,We will wait for your next article so only.Thanks! philadelphia river walk

    ReplyDelete
  22. CSGO Prime Accounts for sale are the paid version of game which you can get buy from Steam store. The perks of being a csgo prime accounts user is that you’ll only be matched against other csgo prime accounts players. Also when you get the csgo prime account status then you are eligible to get only prime exclusive drops in-game. If you are an old player then it is really good for you to get a CSGO Prime Ranked Account and start playing with other prime players to get the best experience.

    ReplyDelete
  23. At the point when you need to buy home office furniture you need to consider certain things.office space for rent del mar ca

    ReplyDelete
  24. Most homebuyers do not have the information, ability, and objectivity expected to investigate a home themselves. By utilizing the administrations of an expert home auditor, guides

    ReplyDelete
  25. It refreshes the lighting apparatuses in an obsolete home. Numerous individuals live in faintly lit homes and they are not even mindful of how dim it is. How to get dried paint out of jeans

    ReplyDelete
  26. For ex: A rural styled room can be organized all things considered, a nation style, a contemporary style, and so on
    nautical lighting

    ReplyDelete
  27. This comment has been removed by the author.

    ReplyDelete
  28. Very informative and amazing blog. I found it very interesting.
    Thanks for sharing
    Regards
    https://firesafetyitems.com/

    ReplyDelete
  29. Frequently it is a purchaser who demands a review of the home the person is not kidding about buying. A home investigation conveys information so choices about the buy can be affirmed or addressed, and can uncover genuine as well as costly to fix absconds that the vender/proprietor may not know about. mulberry silk sheets

    ReplyDelete
  30. Utilizing a home stager preceding starting a home flip can be helpful since a home stager is prepared to search for the corrective subtleties in a property that need the most consideration. moroccan tile

    ReplyDelete
  31. It's likewise savvy to keep an eye on proficient accreditations and licenses, where required, and be sure that the project workers you enlist are completely safeguarded and reinforced. Your town or city Building Department can give that data. Furthermore, it's vital that you ensure project workers convey laborers' pay protection: if laborers are harmed at work, you will not be responsible if the project worker is covered. Solicitation duplicates of their protection endorsements. carpet cleaning orange county

    ReplyDelete
  32. Stagers will assist venders with diminishing mess in the home and cause it to seem bigger. blue town society in lahore

    ReplyDelete
  33. For what reason would it be advisable for me to get a home examination? home decor

    ReplyDelete
  34. The service that Imarah Marketing offers is the best out there. There are no hidden fees and we were in complete contact throughout the entire process. I We would definitely recommend Imarah real estate Marketing to others looking to buy a property in Islamabad Pakistan
    https://imarahmarketing.com/blue-world-city/
    https://imarahmarketing.com/

    ReplyDelete
  35. For instance, your assessor will suggest you call an authorized structure engineer in the event that they discover segments of the home that are crooked, as this could show a genuine primary inadequacy. punaises de lit paris

    ReplyDelete
  36. effective content sharing
    https://imarahmarketing.com/
    https://imarahmarketing.com/blue-world-city/

    ReplyDelete
  37. Having professional team
    https://imarahmarketing.com/blue-world-city/

    ReplyDelete
  38. On his internet site you could see many different locations in which he has created this shape of artwork.hype beast

    ReplyDelete
  39. The home has a 4 ton 13 SEER appraised AC framework.
    Tajarat strives to be Pakistan's biggest real estate developer ever, guaranteeing the highest international standards, prompt execution, and lifetime customer loyalty. For further detail visit
    park view city islamabad plots for sale

    ReplyDelete
  40. Many thanks for your kind and efficient service for booking a plot in park view city and blue world city.I will definitely recommend Imarah real estate services to others in the future.
    https://imarahmarketing.com/
    https://imarahmarketing.com/blue-world-city/
    https://imarahmarketing.com/park-view-city-islamabad/

    ReplyDelete
  41. Imarah Marketing PVT LTD is the best marketing platform I've ever worked with. They had innovative ideas that not only improved the company's brand but also made it exciting to promote.
    I can't say enough about what a great experience I've had with Imarah Marketing PVT LTD and I'll definitely be recommending them to all of the people that I can.
    https://imarahmarketing.com/

    ReplyDelete
  42. What about 101 extraordinary reasons why you ought to think about this exceptionally savvy land speculation? Europa-Road targonca szállítás Debrecen

    ReplyDelete
  43. It's an extraordinary thought for you be available during the investigation - regardless of whether you are purchaser, dealer, or homeowner. Mulberry silk bedding

    ReplyDelete
  44. ShenZhen MaiJin Metal Works Co., Ltd. was founded in 2006. We have built up a good reputation for quality, service and reliability like cnc

    ReplyDelete
  45. If you are looking for a Stripe account, we are here to make it easy for you. You may buy verified stripe accounts from here. Buy Stripe Account

    ReplyDelete
  46. Informing Australia And The Rest Of The World such as Tech Business is a reliable and popular online resource of information about technology and hi-tech products. Tech News

    ReplyDelete
  47. If you wanna make your information stronger than anyone else contact to given link DIY Solutions

    ReplyDelete
  48. I appreciate everything you have added to my knowledge base.Admiring the time and effort you put into your blog and detailed information you offer.Thanks. mulberry silk sheets

    ReplyDelete
  49. he following are the essentials you need to know for adding a space onto your home;

    - Make designs and get licenses from specialists.

    silk bed sheets

    ReplyDelete
  50. Dolls house development is a genuine workmanship which requires time and devotion. mélybölcsős fuvarozás Europa-Road Kft.

    ReplyDelete
  51. THEAPP was developed to allow gay community members to interact safely with and acts as a guide to "LGBTQ friendly merchants and services". In many societies up until about fifty years ago, gay people were treated as “second class” sometimes worse fine dining near me

    ReplyDelete
  52. The savviest of small home improvement contractors are using these new rules to improve their companies' image to portray a well trained professional operation. Boiler Edinburgh

    ReplyDelete
  53. Interesting topic for a blog. I have been searching the Internet for fun and came upon your website. Fabulous post. Thanks a ton for sharing your knowledge! It is great to see that some people still put in an effort into managing their websites. I'll be sure to check back again real soon. vựa cam sành tphcm

    ReplyDelete
  54. Amtico Floor Tiles are exactly what you need. The Amtico brand is intended to recreate the allure of regular material floors, with better outcomes and unrivaled execution. blog

    ReplyDelete
  55. Great Information
    https://imarahmarketing.com
    https://imarahmarketing.com/samanasmartcity/
    https://imarahmarketing.com/park-view-city-islamabad/
    https://imarahmarketing.com/blue-world-city/

    ReplyDelete
  56. Silk is strikingly surely understand for its remarkable qualities of being hypo hypersensitive, tough and residue vermin safe model.silk bed sheets

    ReplyDelete
  57. Thanks for the tips guys. They were all great. I have been having issues with being fat both mentally and physically. Thanks to you guys i have been showing improvements. Do post more. Luxury Car Rental Miami

    ReplyDelete
  58. Very informative post ! There is a lot of information here that can help any business get started with a successful social networking campaign ! Lamborghini Rental Miami

    ReplyDelete
  59. As more and more people find out and as the presence of God and his kingdom increase worldwide, there is going to be a release of the Devil’s captives like the world has never seen.deliverance ministry

    ReplyDelete
  60. Incredible article distributed here by you. I have long been eager to adapt new things in relation to this topic, and there is no doubt that I have adapted new things today. Driving lessons Blacktown

    ReplyDelete
  61. What a well written and compassionate article. I found your ideas and wisdom encouraging and helpful. blue world city Islamabad payment plan 2021

    ReplyDelete
  62. This is a great feature, so much so that you give it and give it away for nothing. Our article has generated a lot of positive interest. joker stash

    ReplyDelete
  63. This is my first time i visit here. I found such a substantial number of interesting stuff in your blog especially its examination. Really its inconceivable article. Keep it up. Cyber News

    ReplyDelete
  64. Regular visits listed here are the easiest method to appreciate your energy, which is why why I am going to the website everyday, searching for new, interesting info. Many, thank you click article

    ReplyDelete
  65. I just visit your website and I found it very informative. Please share more content just like that. I want to read more content so please upload more articles. Thanks in advanced.

    Packaging Host

    Die Cut Stickers

    Static Cling

    Cheap Latest Products

    Property Saga

    Lahore Smart City

    Nova City Islamabad

    Park View City Islamabad

    Al Noor Orchard Lahore

    ReplyDelete
  66. You'll be in an ideal situation in the event that you limit issues with legitimate upkeep. Look at all aspects of your home one time per year. Repair and Maintenance for Wolf appliances

    ReplyDelete
  67. Land arranging can take a "old property" that has been available for a really long time and make it a "hot property" again inside the land local area. Silk Beddings

    ReplyDelete
  68. Also, however nobody can make undeniable certainties, they would have had a way better way to rapidly sell their home. They would have gotten that house June needed. reformas zaragoza

    ReplyDelete
  69. Land arranging makes an enthusiastic reaction from the potential home purchasers that can bring about a proposition made at the time of passionate connection to the home. pintores zaragoza

    ReplyDelete
  70. It helps realtors manage their work all the more adequately when the home is flawless, coordinated and appropriately arranged
    estudio arquitectura zaragoza

    ReplyDelete
  71. FOR HOME BUYERS: A critical motivation behind why many keep away from real estate professionals is that most deals related positions have negative generalizations. instaladores de aire acondicionado en zaragoza

    ReplyDelete
  72. Home arranging adds check offer, which thusly can assist with attracting forthcoming purchasers. On the off chance that the control advance isn't acceptable, commonly the purchasers won't escape the vehicle to visit the home. limpiezas zaragoza

    ReplyDelete
  73. A natural styled room can be organized thusly, a nation style, a contemporary style, and so on
    Europa-Road targonca szállítás Debrecen

    ReplyDelete
  74. Land arranging makes a passionate reaction from the potential home purchasers that can bring about a proposition made at the time of enthusiastic connection to the home. Victorian lighting

    ReplyDelete
  75. A stager can save a home merchant the superfluous cost of purchasing furniture to arrange a home and now and again likewise lease furniture and accomplices to the homeowner for not so much cash but rather more adaptable tenant agreements. office furniture online deals

    ReplyDelete
  76. It is the specialty of adorning a home to interest all preferences and consequently will engage a more extensive scope of possible purchasers. пръскане срещу кърлежи

    ReplyDelete
  77. Wall Decor - To create decorative and pleasing walls it is important that you choose the right wall decor pieces, each casting its unique look and importance in the room. https://shuttlesky.in/

    ReplyDelete
  78. It draws the eye away from the little blemishes in a home and cause to notice the good elements of a home.pintor zaragoza

    ReplyDelete
  79. Top real estate investment in Lahore
    Contact with Aetmaad they are best and trusted source for real estate investment in Pakistan.100% Best place to invest in real estate.

    ReplyDelete