Are we really in a bubble?
First off, let me just say that I've really enjoyed reading this blog over the past couple of months and commend The Tim and others who have spent so much time putting together such extensive data behind our housing market.
I've been thinking about the run-up in prices that we've had over the past few years and it got me thinking about how it compares to historical price swings. For example, in the Seattle market have we ever seen appreciation greater than we have in the past few years?
I recently came across some data from the OFHEO (Office of Federal Housing Enterprise Oversight). In particular, I took a look at historical data for their Home Price Index for the Seattle area. This is how they define their HPI:
"The HPI is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975. "
In other words, it sounds an awful like the Case/Shiller index except that it accounts for refinancing while C/S does not. OFHEO also has YoY data going back to 1976 while C/S appears to only go back to 1991 in respect to the Seattle market.
So, what does this data show? I was surprised to see that in the late 1970's and late 1980's we saw appreciation significantly greater than we have in our latest run-up...according to the OFHEO data. You may be wondering: how does it compare with C/S? Below I've graphed both sets of data against each other and you can see that they seem to be fairly consistent (not as pretty as The Tim's graphs but I think you'll get the idea
):
By looking at this data it doesn't appear to me that we've experienced anything in the last few years that we haven't seen before. Maybe I'm missing something here so if anyone would like to point out why I'm reading this wrong I would love to hear it.
PS - You can find the OFHEO data for Seattle here: http://www.ofheo.gov/hpi_city.aspx
I've been thinking about the run-up in prices that we've had over the past few years and it got me thinking about how it compares to historical price swings. For example, in the Seattle market have we ever seen appreciation greater than we have in the past few years?
I recently came across some data from the OFHEO (Office of Federal Housing Enterprise Oversight). In particular, I took a look at historical data for their Home Price Index for the Seattle area. This is how they define their HPI:
"The HPI is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975. "
In other words, it sounds an awful like the Case/Shiller index except that it accounts for refinancing while C/S does not. OFHEO also has YoY data going back to 1976 while C/S appears to only go back to 1991 in respect to the Seattle market.
So, what does this data show? I was surprised to see that in the late 1970's and late 1980's we saw appreciation significantly greater than we have in our latest run-up...according to the OFHEO data. You may be wondering: how does it compare with C/S? Below I've graphed both sets of data against each other and you can see that they seem to be fairly consistent (not as pretty as The Tim's graphs but I think you'll get the idea
):By looking at this data it doesn't appear to me that we've experienced anything in the last few years that we haven't seen before. Maybe I'm missing something here so if anyone would like to point out why I'm reading this wrong I would love to hear it.
PS - You can find the OFHEO data for Seattle here: http://www.ofheo.gov/hpi_city.aspx
Comments
I believe we're in uncharted territory, and I don't think I have much to gain from a down shift in economy.
But wouldn't we have expected the appreciation to be more dramatic over these past few years with all the use of the "exotic" financing? This data seems to show the opposite... that we had much more dramatic appreciation way before this exotic financing had been created.
Good post - I wonder if one difference is inflation (e.g. C/S is REAL and OFHEO is NOMINAL??)
We had pretty good inflation back in the late 70's/early 80's - which trims about 7 or 8 points off that peak if OFHEO is nominal.
From most other sources I have seen, the 1990 peak was higher than the current one - though not as extreme as OFHEO seems to show. I think I read somewhere that median price topped out at 18% or so vs. ~14% in this boom.
But in looking at both booms - they both ended the same way, it appears - a crash with a year or so of downturn.
FWIW, I am not a member of the 50% off crowd - but I do thnk we could see 10%. Especially since we've never seen a nationwide decline in home prices like we are seeing today.
*** oh, and that backwards time series thing really had me confused for minute!***
200k to 300k - 50% but 100k.
I think you need to investigate more than just appreciation in percentage alone.
Good point about inflation but I tend to think they're measuring it in real prices since it tracks the C/S index very well. Granted the time period it tracks C/S we saw inflation relatively contained at 2-3%/yr but still...I think it would not follow C/S as closely if it were measured in nominal terms.
I also found this interesting off a FAQ on OFHEO's website:
14. How does the HPI differ from the S&P/Case-Shiller® Home Price indexes?
Although both indexes employ the same fundamental repeat-valuations approach, there are a number of data and methodology differences. Among the dissimilarities:
a. The S&P/Case-Shiller indexes only use purchase prices in index calibration, while the all-transactions HPI also includes refinance appraisals. OFHEO's purchase-only series is restricted to purchase prices, as are the S&P/Case-Shiller indexes.
b. OFHEO's valuation data are derived from conforming, conventional mortgages provided by Fannie Mae and Freddie Mac. The S&P/Case-Shiller indexes use information obtained from county assessor and recorder offices.
c. The S&P/Case-Shiller indexes are value-weighted, meaning that price trends for more expensive homes have greater influence on estimated price changes than other homes. OFHEO's index weights price trends equally for all properties.
d. The geographic coverage of the indexes differs. The S&P/Case-Shiller National Home Price Index, for example, does not have valuation data from 13 states. OFHEO's U.S. Index is calculated using data from all states.
For details concerning these and other differences, consult the OFHEO HPI Technical Description (see http://www.ofheo.gov/Media/Archive/house/hpi_tech.pdf) and the S&P/Case-Shiller methodology materials (see
http://www2.standardandpoors.com/spf/pd ... gy_Web.pdf)
Also note that a recent paper, "A Note on the Differences between the OFHEO and S&P/Case-Shiller House Price Indexes," measures the incremental impact of various methodological and data differences between the two price metrics. That paper can be downloaded at http://www.ofheo.gov/media/pdf/notediff2.pdf.
I'm with you on this one...I can totally see a 10% decline in some areas but it's the people who think that there's going to be blood in the streets and that they'll be able to get homes at fire sale prices in the near future who I am concerned about. Put it this way: I think there are very few areas where if you were to purchase today and sold in 5 years that your home would be worth less than what you paid for it. Personally, I think we'll see the market relatively flat for the next few years while some areas appreciate moderately and some areas depreciate moderately.
I agree! You'll be pleased to see it fixed below...
This is a very good post - thanks Mr R! This certainly got me thinking. (I'll still wait with buying - 1) I can rent a better house than I would be able to buy, 2) it doesn't hurt to wait and see what happens in a few years - I am pretty sure prices won't rise significantly during that timeframe and there is some chance they will fall)
This would be accurate if we had not experienced any inflation over this time period. When you're dealing with inflation you can't compare absolute dollar gain amounts because you're really comparing apples to oranges. In other words, if someone had made $150k in appreciation over the past few years, you would have to discount that back by the rate of inflation to get what that amount would have been in 1979 dollars or whatever other period you want to look at. By looking at % change in prices you take care of this issue.