This chart from War Chest shows the price history for his parents' house that he described here, overlaid with other indexes (click to enlarge).
The dark blue line (left axis, in $1,000s) is the estimated house value, from $350K in 1986 to $1,700K in 2007. It's net of a 6% commission, and includes a $100K remodel around 1995.
The magenta interest rate line (right axis, in %) is for a variable-rate mortage based on the 11th district rate.
He also compared the house price to gold as a measure of inflation: "The metric I am most interested in is measuring home prices in terms of gold. I think there has been a lot of inflation over the past 5 years or so and I think that a lot of home price appreciation is simply due to inflation. Anyways, I normalized the house/gold metric [light blue line] so that it starts at the same place as nominal home prices. I also included a 5% constant appreciation line as a reference point. It is so bizarre how the house/gold metric seems to just bounce off of this line on the two occasions it has hit it."
I'd note that from the mid-1980s to now inflation has more-or-less doubled and interest rates cut in half. Those two alone would justify a 4x price increase. In his case, $350K x 4 = $1.4M. Which is about 20% below $1.7M, suggesting how much it could fall?
The price jump in the last year is a question, but supported by their unsolicited offer and the recent vacant lot sale (although that included plans and permits).
Good work, War Chest!
Wednesday, July 11, 2007
Price history
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2 comments:
"I'd note that from the mid-1980s to now inflation has more-or-less doubled and interest rates cut in half. Those two alone would justify a 4x price increase. In his case, $350K x 4 = $1.4M. Which is about 20% below $1.7M, suggesting how much it could fall?"
That of course assumes that prices were reasonable in the mid '80s.
There was a big price rise in the late 1970s that was choked off by the Federal Reserve raising interest rates from around 1979 to 1985 to stop inflation.
Fixed rate loans were still around 12% in 1985. I'd argue that falling rates beginning in 1986 began the bubble of 1986-89. I saw north-of-Montana low-end prices triple from around $300K to $900K, 1985-89. Sunset Park low-end was around $200K in 1985.
"Reasonable"? Yes, it was expensive then too, given interest rates and salaries, but I think a good baseline to compare what's happened since.
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