Steadfast FinancesHousing Bubble Chartology Post-Government Home Buyer Tax Credits

Real Estate Bubble Chartology Post-Government Home Buyer Tax Credits

Filed in Infographics & Chartology , Real Estate 7 comments

Depending on your views (optimistic vs. pessimistic) of the housing market, you can probably make a pro or con argument on the future direction of home pricing based upon the following 10 year chart. (aka – the Bubble Decade).

Personally, I’m in the glass half empty camp, and like many, I think that nationwide real estate sales prices will continue to decline slowly over time. Call it deleveraging, deflation, or simply a return to common sense, home prices simply can’t remain at elevated (artificially inflated via the credit bubble) prices forever unless banks re-open their vaults to those with subprime credit scores. Which, they’re not doing and doesn’t appear they will anytime in the near future.

This argument is highly dependent upon your geographic location since the strength of local economics vary greatly across the U.S. (median income vs. median home price), however, on a nationwide level, it’s not unreasonable to suggest we’ll slowly return to baseline or pre-real estate bubble levels.

[click image to enlarge]

Image source: Steve Barry for The Big Picture.

Naturally, a “return to baseline” or a “return to historical trendline” argument means further pain, and maybe even a few more futile attempts by the Federal Government to prop up housing prices and cause as much economic pain as possible (the slow Band Aid pull), but when you have a real estate bubble spike this severe, it’s only natural to have a reversion to the mean.

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Posted by CJ   @   29 July 2010 7 comments
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Jul 29, 2010
1:00 pm

I think the worst is yet to come with housing. Every day there are a large amount of people who were barely holding on and making their mortgage payments, who decide to just give up and live in their home for “free” until foreclosure proceedings occur.

Also, unemployment is not going to improve anytime soon. There are too many who are “underemployed” or who have just given up because no good prospects are out there. These people aren’t even counted in the headline number!

I think our country is going to have to face a lower standard of living across the board for a long time. Get ready for a new normal!

Jul 29, 2010
9:33 pm
#2 Matt SF :

I would have to agree with you on that Khaleef. I’m not 100% sold that we’re going to take a huge cut in standard of living, because we do live very well compared to most countries, but I think there will be somewhat of a cultural shift from mindless spending to a more cost conscious state.

Critics will argue with me on that, because the everyday American consumer will probably never giving up living beyond their means, but that doesn’t mean the financiers will give them the money to do so.

Jul 30, 2010
4:10 pm

If banks are no longer willing to fund spending that is fueled by debt, then our standards of living will drop. Like you said, people will argue that fact, but it will become clear soon enough.

I agree with you that the drop won’t put us on 3rd-world status immediately, it will still be a shock to us collectively.

That’s why it’s even more important than ever to deleverage as households – even though that won’t be good for the economy in the short-run – and begin to live below our means.

Jul 30, 2010
12:27 am

I LOVE charts because they can quickly and easily tell a story. There was a similar looking chart that was published by the National Association of Realtors that showed the number of housing starts going back to 1960. I remember asking people around 2005 what they thought about housing (typical reply was continued growth), then showing the chart, then asking the question again. Very different answers after seeing only one chart.

Nice work putting these together.

Jul 30, 2010
8:38 am
#5 Matt SF :

Thanks Michael. I remember asking my Realtor about something similar in 2005, then selling my investment property. He called me a fool, because they said real estate would never crash. In 2010, it’s estimated value is below what I sold it for. Not sure if people can’t do math, or find it more soothing to continue believing their delusions.

Jul 30, 2010
11:33 pm
#6 Pineview Style :

Sure, money was easy to borrow a few years ago, but I wonder how much this last boom also had to do with “messing with real estate” entering the pop culture. It seems like a few years ago every cable channel had some show like “Flip This House.” It seemed like everyone was trying their hand at real estate.

However, as someone was once said about 3 years ago, that it was time to get out of real estate when the guy pouring drinks at Chili’s was talking about his 3rd investment property.

Aug 3, 2010
1:02 pm
#7 Jenna :

I don’t like the fact that those colors are too similar. Makes it hard to figure out which city is mine…

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