Historical Housing Prices Since 1890

I have to agree with the Van Housing Blogger, “I just can’t get enough of this graph“:

A History of Home Values

It’s great to see a graph that goes back so far and that also factors out the effects of inflation. Look like the annualized performance of homes since 1890 is: 100 \left(e^{\left(\frac{log(199/100)}{2006-1890}\right)}-1\right)=0.59\% (real return). Since 1950 it would be 100 \left(e^{\left(\frac{log(199/100)}{2006-1950}\right)}-1\right)=1.24\% (real return).

Here’s an comment to the Van Housing Blogger’s post by “rentah”. He/she says:

As freako has pointed out in prior threads, we need to know more about the ‘equivalent standard house’ to which Shiller refers. If it’s gotten smaller over the years because of increased density, or if it is now on less land, the Shiller analysis underestimates real RE returns.

I’m reiterating this even though I really like the Shiller graph and my own bias is that people overestimate how good an investment RE actually is, largely because they don’t have any other investments to speak of.

David Chilton is that you? That last part sounds a lot like the Weathy Barber, the fact that for some people their home is their only investment, or in some cases their own “good” investment that they have ever made.

“rentah” continues:

Regarding RE returns these next 5 years, well, the graph alone doesn’t tell us whether the crash will come in those 5 years, BUT the fact that we already know how much US housing has slowed, suggests the spike would be shown to have already turned on an updated chart, and when needle-spikes turn, they CRASH.
>50% correction coming up, Vancouver not exempt.

Housing Price Growth Rates in Vancouver

I just found some interesting estate price statistics for Vancouver from one of the forums at realestatetalks.com. Interesting stuff there. A couple of figures of note:

  • The nominal growth rate of house prices from 1976 to 2005 in Vancouver is 8.04% (real is only 3%).
  • The nominal growth rate of house prices from 1985 to 2005 in Vancouver is just over 5% (real looks to be about 4%).

I have always looked for good past statistics on housing price growth rates and found them difficult to find. Now I have some better numbers to use as a rough estimate of future growth, when doing simulations.

A Realtor Gets a Rude Awakening

I found this great, long, article Lights Out in Georgia at the Vancouver Housing Market Blog. I skimmed over the Sonnypage posts and got the general feeling of it. It was interesting to see the real estate’s total shift of opinion from the beginning, “There will be no recession in 2006”, to the end “our worst second quarter ever in our twelve years.” I really liked Mish’s analysis at the bottom of the page. Here’s an excerpt:

The “strong economy” was (and still remains) an illusion. What we had was an economy totally propped up by homebuilding and real estate transactions. 40% of all home buying in both 2004 and 2005 was for second homes or for “investments”. In addition people were all too quick to spend that increased “wealth” from home price appreciation (and then some), going deeper and deeper in debt.

The economy has not crashed (yet) because homebuilders are still building. That supports jobs. But when those houses don’t sell (and they won’t – without enormous discounts) all this “paper wealth” of homeowners is going to vanish overnight. As soon as someone drops their price by $100,000 every house in the neighborhood will be repriced. Comps will drop like a rock. Consumers used to seeing nothing but rising prices are in for a rude awakening. Their house will no longer be an ATM. Consumer spending is 75% of the economy and it has only one way to go and that is down. There are going to be a lot of people hurt badly in the recession of 2007.

iShares New Flash Toys

Over at iShares, they have this new gimmicky Flash thing that lets you see a bunch of data in a friendly (although not all that useful) way. On the “Index Return Chart” it says:

Index returns are for illustrative purposes only and do not represent actual iShares Funds performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. For actual iShares Fund performance, close this window and visit Product Information.

How newbie-unfriendly is this comment: “Index returns are for illustrative purposes only and do not represent actual iShares Funds performance.” I can just imagine what some people must be thinking when they read that fine print…they made up these numbers! Of course, if you’re like me, you know the difference between “index” and “actual iShares fund.” But the difference is subtle because most people would call an iShare ETF fund and index…

Why couldn’t they just put the iShares performance instead of their underlying indexes’ performance? Is that so hard to do? Second, since they are actually using the indexes’ performance, could they go back more than 5 years? I mean 5 years only takes us back to approximately the start of the most recent bull market. It was interesting though to click around and see how well all the different indexes in different sectors have fared over different periods relative to each other. There’s also a tracking error chart which I don’t really care about too much. I opened it up for the heck of it and…drum roll…the tracking error is small. I commend them for putting up this data though as well as the premium/discount chart. The more data is publicly accessible in easy to read forms, the better.