Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: neolib who wrote (99141)	1/6/2008 4:22:37 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

What you consider snake-oil is a combination of simple math and economics. As I said, long-term real estate prices rise and fall with GDP. I know you find this hard to believe. Think about this for a while and you'll realize that this relationship is not affected by the number of people who create that GDP. If GDP is $1 trillion, real estate prices will be the same if this $1 trillion GDP is divided among 100,000 people or 100,000,000 - nor does it matter if this GDP is divided evenly or unevenly among the population. These two societies, with identical GDPs, obviously have very different per capita incomes - $10k for the 100 million population and $10 million for the 100k population. The typical home in each society will look different, but the total real estate value in each society will be the same since their GDP is identical. If this seems completely impossible to you, you need to learn some economics. Appraisal groups have performed highly accurate "same home" appraisals over long periods of time. In Southern California the Real Estate Research Council has maintained a "same home" index since 1895. The RERC index of home prices matched GDP in a nearly exact fashion from 1895 to 1945. From 1945 forward, home prices have risen faster than income with each change in mortgage and tax policy. You may claim that the population in Southern California remained constant from 1895 to 1945 and then rose sharply - but you'd be wrong. This chart is replicated in every geographic region where a "same home" index has been kept. You might think that when we saw a change from one-income households to two-income households after WW-II that homes would have become more affordable - after all this greatly increased family income with no increase in population. But instead homes remained just as "unaffordable" as real estate prices rose in line with the increased income (GDP). Much of the "common wisdom" you've read about real estate is simply not true. .