Maybe houses were UNDER valued?

[carlislematthew]

[mike2]

[carlislematthew]

If rents were jumping between 1998 and 2000 and house prices were NOT, then doesn't that show that house prices in 1998 didn't keep up?

I also believe there were law changes in mortgage interest deductions in 1997. Someone in the know, please chime in. If this is the case, that would have made housing cheaper for most people, and therefore also made them "under valued".

[biliruben]

Tax reform was in the 80s.

The reason I use 1997-1998, is that that's the time that housing prices started deviating significantly from the slow linear increases of just a 1-3% increases above inflation, and the ratio of price/rent and price/income started getting out of whack.

In other words, housing prices, though fluctuating year to year, generally stayed in line with fundementals over the long-term...

... until the mid to late 90s.

We've seen prices nearly triple in 10 years, with no underlying changes in anything to justify it. Even if you have no statistical background or data other than that, any moron can see that's a bit odd.

[carlislematthew]

It's certainly odd, and no reasonable person is going to say that current prices are based on fundamentals, but I'm still not sold on the 97-98 being the right price.

I bought a house in 2003, which I could now rent for about the same money as my mortgage payment was, which BTW was a fixed mortgage. (Yes, that includes taxes, deductions, etc. Doesn't include maintenance, but I'm just going to cancel that with principal.)

Considering that rentals seem to be under reasonable demand (I just rented a house, so I'm well aware of the market - they're not cheap or not hugely expensive), it seems to me that prices should revert to 2002 prices as I'm imagining that they'll undershoot just a little. In addition, with interest rates at about 7% (+- 0.5%) I think that I'll be able to buy a place for about the same payment as in 2003, inflation adjusted of course.

My experience may be a little local (Issquah) so I'm not sure how Seattle or other areas would fit in with this. Perhaps Issaquah is special?

[biliruben]