A Real-Estate Roller Coaster (Literally)

The Yale economist Robert Shiller has indexed American housing prices going back to 1890.

You know how people like to say that such-and-such experience “was a real roller-coaster ride”?

Well, the blogger Richard Hodge at SpeculativeBubble.com wanted to see if housing prices really were a roller-coaster ride. So he plotted Shiller’s inflation-adjusted index onto a roller-coaster video ride. It is pretty fantastic.

(Hat tip: Matthew Fogarty)


Josef Svenningsson

I would love to have a tool that could help do these kinds of funky visualizations. Something to think about for visualization software like swivel and spotfire.

chancey

this is very cool. towards the last stretch of climing, you almost feel the coming fantastic plunge is nearer and nearer...

ftelegdy

If only we could have seen 2006 from 1970 in real life like you could on the roller coaster...

egretman

If only we could have seen 2006 from 1970 in real life like you could on the roller coaster…

Someone sent this to me recently and I have been sending it to everyone I know under the age of 35 who has never ever experienced a housing recession or depression.

Young people just think you buy a house and sell for a 20% gain in 2 years and that that can never ever stop and will go on forever and ever.

Chewxy

Josef: It was made with Roller Coaster Tycoon 3 (it was stated at the end of the video)

I want to ride on such a roller coaster btw... 4 mins of pure rush of adrenaline.

David Peterson

There's a huge flaw in this analysis; if he's using the standard inflation index that the BLS releases, those include the price of housing as a major part (something like 30% of the total index) of that index.

BlueNumber2

I saw this a couple of weeks ago and thought it was pretty cool. It reminded me of the Douglas Admas book Dirk Gently' Holistic Detective Agency in which a character previously struck it rich by creating software to translate corporate profit numbers into music. The better sounding the music, the better the company was doing.

cthayler

A couple of thoughts. Last time I saw a graph like that was the Nasdaq back in 2000. But it is interesting to wonder by how much specific markets (New York, San Fran) are driving up the national average.

Also seems like the government will be hard pressed to more strictly regulate mortgage lending if/when this goes south.

Nobrainer

It would also be fantastic to see the data plotted on a per-square-foot basis.

editorguy

I saw this recently and, when it was done, I remember thinking that I was put in a sort of trance. That the Internet is ruining my attention span and making me dumb(er). I thought it was cool but childish and simple-minded.

Then I watched it two more times and emailed the link to about five friends.

gocards44

Haven't house prices risen in part because of new laws that developers must pay for logistics for new homes (i.e. water power roads) and they've been passing these costs to consumers?

Moreover, haven't house prices risen because people are treating their homes as a place to store wealth, rather than just a place to live?

egretman

Haven't house prices risen in part because of new laws that developers must pay for logistics for new homes (i.e. water power roads) and they've been passing these costs to consumers?

That's socialism of the worst kind. I can assure you that in Texas we never would make developers pay for anything that would detract from making a profit on shoddily built homes in the suburbs. Never.

liberalarts

I am with "Nobrainer" in that it would be really interesting to see this graph as per square foot. Surely, the average square footage has more than doubled since 1890, so even after this current run-up, housing is probably cheaper per sq. foot now than then. Also, remember that a "house" has changed over time in the same way that "health care" has -the words are the same but the product is different. I live in a house built around 1890. No running water, no electricity, poor central heating, no central air, no sewage system, smaller lot, etc.

scalperjim

As a trader, I love this kind of stuff! It's such a different way to view the world. I'm always looking for different ways to view the markets.

Take care,
Jim

brit

Hmm, I have to wonder about that original chart. Here in Denver, housing prices shot up between 1997 and 2001, but have been pretty stagnant since then. I had my place reappraised a few years ago and discovered that it had only appreciated 1.5% per year. Based on sales in my area, I'd say it hasn't changed much since then, so the almost-vertical line shown in years 2002-2007 seems surprising to me. (I realize that Denver isn't like the rest of the country, but I've heard of no such booms in the rest of the country - except in a few isolated cases.) I have noticed a definite trend towards building larger, more expensive housing, however. There seems to be a lot of new construction worth three or four times the value of my property going up in my own neighborhood. When those places go on the market (or are resold on the market, since this chart track re-sales), it would definitely drive up the "housing costs" even though they aren't really a good measure of the actual housing costs.

Read more...

brent

You can get changes in home prices, in nominal terms, off of websites like Zillow. For the county where my wife and I live, Zillow shows a graph and table with a 97% increase in home prices over the past five years, but a 5% decrease over the last year. That includes new as well as existing home sales though.

caveatBettor

One thing that Shiller conveniently left out of this graph is a normalization for the increase of income and/or wealth since 1880. Real GDP per capita has jumped over 8 times* in the last 120 years. Applying that to the roller coaster would peg housing values to be 24% of real GDP per capita at the 1880 level.

Yes, we spend 2 times on housing what folks in 1880 did (forgetting, for a moment, that we have plumbing & sewage, electricity, heating, air conditioning, digital wiring, fireproofing, sump pumps ...) in houses today. But we have 8 times the buying power. Ultimately, housing is deflationary to the consumer.

*http://eh.net/hmit/gdp/gdp_answer.php?CHKrealGDP_percap=on&year1=1890&year2=2005

pkimelma

Yes, tracking house prices is a tricky business if you are trying to truly index the prices to normalized costs of other items. Further, as others have pointed out, you have to consider what comes with a modern house vs. the past, especially in high cost amenities (A/C and heaters, large appliances, alarm systems, etc). The price per sq foot is not fully useful unless you also look at land per house as well. Big houses on small lots vs. small houses on large lots for example. I think the "spurs" of retail vs. resale vs. condo needs to be considered.

I suspect that if you did this on a State by State basis, you would find some quite different tracks. California has often defied physics/gravity when it comes to housing. Other areas tend to be much flatter. Some have had spectacular drops (such as Houston).

CNannery

In western Canada (and I assume US) housing shot up pre-1999 due to immigration and the transition of Hong Kong back to China. There was also a ripple effect going inland, as those who sold repurchased.

Newton

“Yes, we spend 2 times on housing what folks in 1880 did (forgetting, for a moment, that we have plumbing & sewage, electricity, heating, air conditioning, digital wiring, fireproofing, sump pumps …) in houses today. But we have 8 times the buying power. Ultimately, housing is deflationary to the consumer.”

The fun part of the roller coaster isn't the steady upward trend from 1880 until today – it's the short term boom-and-bust volatility. Housing prices have doubled since 2000, not 1880, although there are few new amenities today to justify the additional cost (and I'm pretty sure that buying power has not increased eightfold since 2000).