Location, Location, Location II

There’s a graphic making the rounds of real housing prices in the United States 1890 to the present that I don’t see any of those who link to it seeing some of the fairly obvious relationships.

Yes, housing prices have increased enormously over the last ten years. Yes, there’s been a bubble.

However, from the mid-1970s on whether you measure peak-to-peak or trough-to-trough housing prices have been going up. That may reflect the old wisecrack that land is something they’re not making any more of. I also think as I suggested earlier this morning that this chart conceals more than it reveals. Remember that the Case-Shiller index is not housing prices but rather an index derived from housing prices. This graph may only show an artifact of the index.

I’d be more interested in seeing a chart for, say, LA County only, Cook County only, and so on. The chart may only be saying that investing in “housing” is as dumb as investing in “the stock market#148;. Unless you were very, very lucky if you bought stock in 1890 and held it you probably wouldn’t be a gazillionaire. You’d have lost your shirt. The DOW goes up because it’s a composite whose composition varies over time and it’s supposed to go up.

6 comments… add one
  • PD Shaw Link

    I’m somewhat baffled by the prospect of using 1890 as a reference point. I’d be curious if any of my ancestors owned any house in 1890 that they did not build themselves. It seems like a different economy, an era of different technologies, and other differences I can’t think of off the top of my head.

  • PD Shaw Link

    One thing about prices though is that in established cities, there are usually a steady rate of demolitions that probably operate as public price supports.

  • Drew Link

    The Wilshire 5000 index is a better, and broader measure. It goes up over time because in point of fact, inaggregate, equity accretion is real. When businesses grow and prosper, they create equity. For private businesses, to the private owners. For public businesses, to public owners as reflected in numerous indecies.

    I’d hate to see this site go over to the loonies, and deny equity creation.

  • I absolutely, positively do not deny equity creation, Drew. However, I do think that proprietary indices should be looked at with a skeptical eye as measures of the health of the overall economy.

  • Drew Link

    “The DOW goes up because it’s a composite whose composition varies over time and it’s supposed to go up.”

    So what was the point? Is this errata?

    I agree that equity indices do not reflect overall economic health. Trust me. They reflect, well, equity value. Over the long haul they correlate with GDP, but not in the short run. Understood.

    I apologize if my comment seemed overly strident. But there is so much idiocy going around now that its almost painful to get up in the morning. The NYT or WP are just Obama corksucking numbnuts. Same for the mainstreams and CNN or MSNBC, Time, whatever. Mind numbingly stupid.

    I have more sympathy for FOX, but that’s partisan, too.

    As for the blogs, OTB is approaching unreadable these days. Ivory tower professors gone wild. A reality TV show in the offing?

    I guess I’m a prisoner of my world. The real world of slugging it out with real investors, with real companies, with real competitors and customers, with real business problems, in the environment as it really is, and with real managers trying to solve the issues. And when I see a Wolf Blitzer, or Barry O, or Nancy P, or the new clowns at OTB or the usual commentors like BF or MR who don’t have a clue about business pontificating on and on……….I get a headache, and depressed. These people have no clue – none – but they get to vote, legislate and comment as if they had a clue? Oy.

    No country for old men.

    OK, to coin a phrase, I’ll shut up now. My spleen is empty.

  • I agree that equity indices do not reflect overall economic health. Trust me. They reflect, well, equity value. Over the long haul they correlate with GDP, but not in the short run. Understood.

    Good, succinct statement of the point I was trying none-too-articulately to make.

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