Here are two charts that might scare your socks off, from the Wikipedia entry on "housing bubble", which has grown a half page a day this week, almost:
Here is another, through May, showing that housing prices peaked last year (Miami showed the largest increase, rest of markets in order from bottom-to-top of chart).
Has economic growth supported the rise in home prices?
These tables show a short answer to that, in three parts: economic growth (increase in what people have to spend on housing in total), changes in financial market variables (nominal mortgage rates), and the growth in the total number of housing units (households proxy).
The rise in prices appears generally to be supported - the over / under is in a general range of +/- 20%. I'd be alarmed if the range was upwards of 50%.
Of course, the analysis is sensitive to the housing price index used. I've just taken one broad and good survey, that uses the median (the average might be quite a lot higher). Notice that this measure doesn't nearly double like the one in the chart above, starting from around 2000.
| Year | GDP ($MM) | PCE ($MM) | Avg Contract Mtg Rate | memo: Spread to 10-yr | Implied Value of Housing Stock ($MM) |
|---|---|---|---|---|---|
| 1987 | 4739.5 | 3100.2 | 9.19 | 2.01 | 5,195 |
| 1988 | 5103.8 | 3353.6 | 8.92 | 0.66 | 5,790 |
| 1989 | 5484.4 | 3598.5 | 9.31 | 0.30 | 5,952 |
| 1990 | 5803.1 | 3839.9 | 9.68 | 1.25 | 6,109 |
| 1991 | 5995.9 | 3986.1 | 9.54 | 1.51 | 6,435 |
| 1992 | 6337.7 | 4235.3 | 8.02 | 0.71 | 8,133 |
| 1993 | 6657.4 | 4477.9 | 7.49 | 1.1 | 9,207 |
| 1994 | 7072.2 | 4743.3 | 6.73 | 1.09 | 10,854 |
| 1995 | 7397.7 | 4975.8 | 7.77 | 0.18 | 9,862 |
| 1996 | 7816.9 | 5256.8 | 7.18 | 1.6 | 11,275 |
| 1997 | 8304.3 | 5547.4 | 7.55 | 1.05 | 11,315 |
| 1998 | 8747 | 5879.5 | 7.12 | 1.61 | 12,717 |
| 1999 | 9268.4 | 6282.5 | 6.77 | 2.12 | 14,291 |
| 2000 | 9817 | 6739.4 | 7.79 | 1.12 | 13,323 |
| 2001 | 10128 | 7055 | 7.25 | 2.07 | 14,986 |
| 2002 | 10469.6 | 7350.7 | 6.81 | 1.78 | 16,623 |
| 2003 | 10960.8 | 7703.6 | 5.91 | 1.94 | 20,074 |
| 2004 | 11685.9 | 8195.9 | 5.63 | 1.49 | 22,419 |
| 2005 | 12433.9 | 8707.8 | 5.72 | 1.59 | 23,444 |
| 2006 | 13194.7 | 9224.5 | 6.3 | 1.77 | 22,549 |
| 2007 | 9769.8 | 6.37 | 1.54 | 23,619 | |
| 2008 | 10062.9 | 6.83 | 2 | 22,689 |
| Year | Number of Housing Units (M) | Implied Value per unit | Median Asking Sales Price | Median -/+ Imp Value |
|---|---|---|---|---|
| 1987 | 101,811 | 51,027 | % | |
| 1988 | 103,653 | 55,858 | 59,200 | 6% |
| 1989 | 105,729 | 56,299 | 54,200 | -4% |
| 1990 | 106,283 | 57,478 | 62,700 | 9% |
| 1991 | 107,276 | 59,982 | 63,700 | 6% |
| 1992 | 108,316 | 75,082 | 73,300 | -2% |
| 1993 | 109,611 | 83,996 | 69,600 | -17% |
| 1994 | 110,952 | 97,825 | 72,200 | -26% |
| 1995 | 112,655 | 87,541 | 77,500 | -11% |
| 1996 | 114,139 | 98,783 | 81,200 | -18% |
| 1997 | 115,621 | 97,865 | 87,700 | -10% |
| 1998 | 117,282 | 108,430 | 87,800 | -19% |
| 1999 | 119,044 | 120,049 | 89,400 | -26% |
| 2000 | 119,628 | 111,371 | 90,400 | -19% |
| 2001 | 121,480 | 123,360 | 93,300 | -24% |
| 2002 | 119,297 | 139,339 | 111,100 | -20% |
| 2003 | 120,834 | 166,126 | 117,100 | -30% |
| 2004 | 122,187 | 183,478 | 122,100 | -33% |
| 2005 | 123,925 | 189,180 | 140,100 | -26% |
| 2006 | 126,012 | 178,942 | 168,800 | -6% |
| 2007 | 127,438 | 185,340 | 168,800 | -9% |
| 2008 | 128,438 | 176,657 | 168,800 | -4% |
Source: National Average Contract Mortgage Rate, Federal Housing Finance Board's Monthly Interest Rate Survey (MIRS); BEA; Bureau of the Census; constant proportion equal to 15% of PCE assumed spent on housing; 2007/8 estimates thought to be conservative. It's an r-sq of 0.877 - see for yourself:
Important Note: This is just a back-of-the-envelop look. Houses, of course, as wasting assets, so some annual measure of depreciation might be added, although this might be small given a useful life of a home of 50 years (2% annually). "Housing units" are not standardized, so simply adding new to old without adjustment is a slight of hand. Also, the size and quality of land associated with homes is clearly very important.
[to be continued ... "Does No Bubble Mean No Trouble?"]
