Housing, sliced & diced

[bart]

Many ways to look at where we've been and where we're going.





http://www.nowandfutures.com/images/median_family_home_income.png






http://www.nowandfutures.com/images/median_us_home1900-current.png


(same chart, but in log format)
http://www.nowandfutures.com/images/median_us_home1900-current_log.png





One historical parallel and view on when the market will bottom on a relative basis.

http://www.nowandfutures.com/images/case_shiller_home_month_supply.png





http://www.nowandfutures.com/images/nahb_wells_fargo_housing_index.png




http://www.nowandfutures.com/images/pain_misery_housing_index.png



http://www.nowandfutures.com/images/building_permits_starts_sa1959o.png









And the grand overview, the hard vs. paper asset cycle since 1900. The blue line is 1/20 of gold ounces needed to buy a median priced U.S. house.

http://www.nowandfutures.com/images/dow_gold_oil_crb1900-current.png



"History doesn't repeat itself, but it does rhyme."
-- Mark Twain










The Stages of the Real Estate Cycle




Population growth and commercial growth at the early stage of the economic cycle, often supported by government encouragement/ low interest rates, creates an increase in the demand for housing and commercial buildings in excess of current supply.
It takes time for construction to gear up. This construction increases demand for vacant land. Bank loans are attracted to construction and real estate sales as prices begin to rise.
As vacant land prices rise a boom in land develops, leading to sub-divisions and speculative resale.
The real estate cycle peak is characterized by a high volume of subdivision and sales.
Construction catches up with demand and a small surplus is created. Rents can't go up enough to support the higher property costs, making new construction and rental property investment unprofitable. Land values start to adjust downwards, the bubble/mania is broken.
Rising interest rates hurt confidence and profits, adding to the downwards pressure on prices. Real estate enters a 'hanging' slow phase. Asking prices stay high but there are few buyers. Building, subdivisions, and speculation drops quickly. Sometimes a panic or crash begins at this point; often the market just slowly dies. Many keep speculating during this phase as they're unaware of the market having turned.
Real estate starts to get marked down in price. This tends to take quite a while as owners tend to cling to mortgaged property longer than they would to other assets, like shares. Foreclosures rise but the foreclosure process is not quick.
Mortgage costs/interest rates are higher, rents decline, and vacancies increase. The market is dying rapidly. Foreclosures increase; speculators and investors are forced to sell as the capital value of their property decreases below lending margins and rents decrease below holding costs.
The bottom of the market has the following characteristics: high vacancies, low construction rates, foreclosures and no speculation. Debt must be written off and properties sell at a deep discount. Only those who entered stage 6 with little or no debt survive to buy the dramatically discounted properties.



Note that in a typical real estate cycle that non-residential (commercial & industrial) real estate follows residential trends with a time lag of about 5 quarters (the historical range is 3-8 quarters).

[bart]

A few charts of non U.S. housing:



http://www.nowandfutures.com/d2/britain_uk_gold_house_ratio1930-2009.gif



http://www.nowandfutures.com/d2/housing_europe2008.png


http://www.nowandfutures.com/d2/Japan%28Tokyo%29HousePriceIndex1980-2007%28keen%29.PNG




http://www.nowandfutures.com/d2/world_housing_prices1997-2008%28economist%29.gif



http://www.nowandfutures.com/download/economist_housing_britain_australia_us_1998-2005_CSF110.gif



http://www.nowandfutures.com/download/economist_housing_japan_and_US_CSF103.gif

[bart]

<center>Europe FT housing indexes

</center>


<center>http://www.nowandfutures.com/images/europe_housing01.png</center>

<center>http://www.nowandfutures.com/images/europe_housing02.png</center>

<center>http://www.nowandfutures.com/images/europe_housing03.png</center>

<center>http://www.nowandfutures.com/images/europe_housing04.png</center>

[cjppjc]

Put the coffee cup down.:eek:

Many thanks. I just finished looking over your other 35 charts.

[bart]

Put the coffee cup down.:eek:

Many thanks. I just finished looking over your other 35 charts.

I just hooked up a coffee IV to my web server, it's getting creamed since I didn't only post both sets of charts here.

I'm only about 2 months behind now... :eek: ;)

[cjppjc]

I just hooked up a coffee IV to my web server, it's getting creamed since I didn't only post both sets of charts here.

I'm only about 2 months behind now... :eek: ;)


Gonna catch up in one day are you?:cool:

[Rajiv]

Bart,

The charts are slightly misleading.

You need to have the ratio median home price to median income -- both inflation adjusted, with the median income factoring in the unemployment - u3, u6 and shadowstats figure

[bart]

Bart,

The charts are slightly misleading.

You need to have the ratio median home price to median income -- both inflation adjusted, with the median income factoring in the unemployment - u3, u6 and shadowstats figure


Cool idea and I can certainly adjust that chart with both CPI and shadowstats.com adjustments (although I think the basic message wouldn't change a whole lot since it's a ratio already, and dollars get canceled out), but I have no idea how to adjust it with U3 or U6 or what you're looking at. Would you please expand on that part of the concept?

[Rajiv]

Also important would be median individual income and median family income

[Rajiv]

On median income, I am assuming that median income is calculated for those people who are employed. If unemployment increases, then the median income should drop -- both for family income, as well as individual income. I am postulating that in the 70's, family income reflected primary earnings by one person -- while today it reflects that of more members of the family contributing to income.

Perhaps also, factoring in total payroll employment as a percentage of the population over the age of 14

[bart]

Also important would be median individual income and median family income

By your command: ;)


http://www.nowandfutures.com/images/individual_net_worth1952on.png



http://www.nowandfutures.com/images/household_net_worth1952-current.png

[bart]

On median income, I am assuming that median income is calculated for those people who are employed. If unemployment increases, then the median income should drop -- both for family income, as well as individual income. I am postulating that in the 70's, family income reflected primary earnings by one person -- while today it reflects that of more members of the family contributing to income.

Perhaps also, factoring in total payroll employment as a percentage of the population over the age of 14


True on employed, but it also includes the passive income of retired or disabled folk but not (to the best of my knowledge) Social Security.

So if I take the minimum U3 value and zero base the entire U3 data series with it, and then adjust family income downward by the remaining percentage month by month, and then make a new chart - is that what you have in mind?
In other words, if the minimum U3 is 4% and a given month is 14%, I would subtract 10% from the figure for median family income for that month? Or if a given monthly U3 was 6%, I'd only subtract 2% from the median family income figure for that month?

If wouldn't be possible to do it with U6, since the data doesn't go back further than 1970.

[Rajiv]

Individual and family net worth are not good surrogates for individual and family median income, because the gap between the rich and the poor has widened, which may mean that the average has shifted upwards, but not necessarily the median, or the mode in the same proportion. Also, wealth averages, disproportionately represent the rich -- since the bottom 40% have relatively little accumulated wealth,

[Rajiv]

(100-u) would be the multiplier for the median individual or family income

[bart]

Individual and family net worth are not good surrogates for individual and family median income, because the gap between the rich and the poor has widened, which may mean that the average has shifted upwards, but not necessarily the median, or the mode in the same proportion. Also, wealth averages, disproportionately represent the rich -- since the bottom 40% have relatively little accumulated wealth,

Unfortunately, its the only thing that I had that was even vaguely close for both.

I do have hourly earnings and monthly income based on only hourly wages, but that's an unworkable substitute. Here's median family income, in both current and 2007 dollars, but it has the same problems with the rich vs. poor gap.... and also massive problems with the 2007 dollar figure due to the understated CPI.



http://www.nowandfutures.com/images/median_family_income

[bart]

(100-u) would be the multiplier for the median individual or family income



http://www.nowandfutures.com/images/median_family_home_income2.png

[Jay]

http://www.nowandfutures.com/images/median_family_home_income2.png
Super cool.