Maybe. 5 - 10 is my guess.. but I am banking on the rent increases to cover part of the spread. If the rent increases don't cover it or property taxes absorb it all - then you are probably right.
What does Y axis mean? Some normalized house price? With or without inflation correction? For some sample house? I simply do not know what I should think of the chart.
The Y-axis is a house price index. An index is valued at 100 in the base year. All other index values represent the price relative to the base year.
So if the price index is 100 in 1990 and 175 in 2000, then average house prices rose a total of 75% in those ten years.
The choice of the base year is entirely arbitrary. One can easily change the base to any year you want with a little division and multiplication.
"Real" means inflation-adjusted.
The reason they use an index rather than dollar values is because this is a weighted-average, and the actual value of the weighted average isn't very informative. We're only interested in the change in prices from year to year.
The index is created by looking at groups of repeat sales of houses over time.
In other words, if a house sells for $100,000 in 2000 and the SAME HOUSE sells for $112,000 in 2001, and inflation was 2% during that year, then this house rose 10% in value.
The index is calculated as a weighted average of all the houses which sold in the same time period. As existing homes are sold, their former price and their current price are added to the index.
They use repeat sales because that does a good job of controlling for qualitative factors such as location, age, quality, size, school district, neighborhood, property taxes, etc.
Some of those qualitative factors can change over time, of course. For example, an owner can add a bathroom, or the school district might deteriorate. But it would be nearly impossible for data collectors to account for everything. So a repeat-sales index is the easiest way to do this. They sacrifice some explanatory power for simplicity.
Repeat-sale indexes such as Case-Shiller, FHFA, and others are preferable to median prices. Median prices, which are often quoted in realtor press releases, are too volatile. The median price is strongly affected by the mix of homes sold in a particular quarter (low, middle, and high price).
The weighted average is smoother. A high-priced home will have a disproportionately high weight in the index, but many cheaper homes can add up to a similar weight. Seven $100,000 homes will have the same weight as one $700,000 home.
5 comments:
Maybe. 5 - 10 is my guess.. but I am banking on the rent increases to cover part of the spread. If the rent increases don't cover it or property taxes absorb it all - then you are probably right.
Farther than that, actually, since balance sheets are strained, credit is tighter, affordability products are gone, and people don't want houses.
On the flip side, there's probably a nice bubble in multifamily housing inflating right now.
Buy now or be priced out forever.
What does Y axis mean? Some normalized house price? With or without inflation correction? For some sample house?
I simply do not know what I should think of the chart.
http://money.cnn.com/2011/10/26/news/economy/occupy_wall_street_backlash/index.htm
The 53%.
Anonymous @ 11:12
The Y-axis is a house price index. An index is valued at 100 in the base year. All other index values represent the price relative to the base year.
So if the price index is 100 in 1990 and 175 in 2000, then average house prices rose a total of 75% in those ten years.
The choice of the base year is entirely arbitrary. One can easily change the base to any year you want with a little division and multiplication.
"Real" means inflation-adjusted.
The reason they use an index rather than dollar values is because this is a weighted-average, and the actual value of the weighted average isn't very informative. We're only interested in the change in prices from year to year.
The index is created by looking at groups of repeat sales of houses over time.
In other words, if a house sells for $100,000 in 2000 and the SAME HOUSE sells for $112,000 in 2001, and inflation was 2% during that year, then this house rose 10% in value.
The index is calculated as a weighted average of all the houses which sold in the same time period. As existing homes are sold, their former price and their current price are added to the index.
They use repeat sales because that does a good job of controlling for qualitative factors such as location, age, quality, size, school district, neighborhood, property taxes, etc.
Some of those qualitative factors can change over time, of course. For example, an owner can add a bathroom, or the school district might deteriorate. But it would be nearly impossible for data collectors to account for everything. So a repeat-sales index is the easiest way to do this. They sacrifice some explanatory power for simplicity.
Repeat-sale indexes such as Case-Shiller, FHFA, and others are preferable to median prices. Median prices, which are often quoted in realtor press releases, are too volatile. The median price is strongly affected by the mix of homes sold in a particular quarter (low, middle, and high price).
The weighted average is smoother. A high-priced home will have a disproportionately high weight in the index, but many cheaper homes can add up to a similar weight. Seven $100,000 homes will have the same weight as one $700,000 home.
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