Comments ( 16 )

• You can spin statistics any way you like, “Home prices plummet at steepest rate in 21 years.” is a true statement. In fact is might even be a conservative statement, considering there’s no data prior to 1987.

  Likewise, prices “rocketed” to there highest percentage increase in April 1998, or maybe they just stepped up to that rate, I don’t know, it was a long time ago. Point is, numbers don’t lie.

  As far as putting things in context, I think everyone realizes that prices are still above the 2003, 2004, and 2005 levels.

  A quick little analysis of the S&P data shows the average price increase (year over year for Chicago) from July of 1990 to December of 2000 (all positive gains spanning almost a decade btw) as being 3.98%. If you apply this “normalized” price appreciation starting January of 2001 and extrapolate it to today, todays prices should be equal to what they were in November/December of 2004. It appears then that we are sitting on prices that are about 9.47% too high.

  Hopefully this wasn’t too “over the top” for anyone.

• Jim: Thanks for the analysis- especially of the 1990 to 2000 numbers. It is nice to see some perspective put on real estate returns.

  It’s also interesting because that decade also included a down market (at least at the start of the decade.)

• I ommitted the declines from the first 6 monthes of the 90’s. During those first six monthes there was an average of a 0.6% decline in prices, year over year.

• The fact that we’ve seen steep declines yet are still so far ahead of where we were a couple of years ago supports, rather than refutes, the idea that we’ve gone through a bubble.

  It’s hard to explain the run up in prices we saw over the past few years in terms of fundamentals. It’s not as if that many more people moved into the area, or for some reason housing in Chicago became significantly more useful.

  Instead, it looks more like an influx of credit and the madness of a crowd came together to push us toward a spike.

  One can argue persuasively that our economy is big and robust enough to absorb this very bad thing. It’s harder to argue that the very bad thing isn’t happening at all.

• Why omit the declines? So the 3.98% isn’t an accurate number either then.

• From July of 1990 till December of 2000, there were no declines to use. There were declines from January of 1990 till June of 1990. If you include the first six months of 1990, the average increase in price is 3.78% (down from 3.98 as previously stated) for the decade, which still puts us at about 10.00% on the high side of where prices “should” be, according to the given assumptions.

• It’s ultimately all bs since real estate is entirely local. The S&P / Case Shiller Home Price data for “Chicago” covers an 8 county region. Broad aggregates are useless indicators of what’s going on in a changing neighborhood like the south Loop or Plainfield.

• “The fact that we’ve seen steep declines yet are still so far ahead of where we were a couple of years ago supports, rather than refutes, the idea that we’ve gone through a bubble.”

  BINGO!!!!

• Real estate is local, but credit is global. Problems in the credit markets are depressing real estate markets all across the globe.

• Jane is right, Joe Zekas is wrong.

• Jane,

  You might want to take a look at the recent Case Shiller results – a number of cities are seeing their housing prices “depressed” in an upward direction. pk has it right. Credit market problems may be affecting real estate globally, but they’re not depressing prices across the board.

  And, if you look at mortgage prices even across the country you’ll find surprising variability in rates on a local basis. I’ve never been able to understand, for example, why interest rates have historically often been higher in the midwest than on the coasts.

• is there a chart that you can reference regarding the differences in rates between the midwest, west southeast, southwest, northwest…i’ve never seen that

• Look at the weekly survey data from Freddie Mac – easily available. The North Central region, which includes Illinois, shows rates between 12 and 44 basis points higher than the the West region.

  That’s nearly a half a point difference on a 1-year adjustable – 5.67% in the North Central vs 5.23% in the West. Fees / points are also higher in the North Central region.

  Credit markets are global? Sheer humbug or meaningless, depending on what it’s being asserted to prove!

• While it is curious why the midwest, or north central as freddie puts it, is higher across the board, it doesn’t dispprove global nature of credit markets. If the Fed decided to raise it’s rate buy a full point those rates for every region would go up accross the board. The 12 to 44 difference may still be there but they’d all go up.

• z,

  Would rates go up around the globe based on the Fed’s action?

  The argument was that credit markets are global.

  That argument is true, to a certain extent, but meaningless in the context of what it was being asserted to prove.

• What the US Fed does with their rate does have have an impact on global rates. Does it have as much an impact globally as it does in the US, no. But it does have a global impact.