Home Prices Fall Again
The decline in U.S. house prices accelerated in September and the economy shrank in the third quarter at a faster pace than first estimated as the grip of the credit crunch tightened. The S&P/Case-Shiller home-price index fell 17.4 percent from a year earlier. – Bloomberg News
“Please tell me what century NYC housing sold at 8x rents? 17th? 18th?” Try the early 90s, the 1990s. My Center Slolpe building, and the one next door, went for about 8X rents. That was the trough of the last downturn. I think this one will be worse economically but hopefully crime, drugs, and racial friction won’t be as bad. Happy Thanksgiving all.
Please tell me what century NYC housing sold at 8x rents? 17th? 18th?
grande surprise. Was anyone not expecting something similar?
Some more data…
Simply put, from 1985-2002, the price of an average
house in the US compared to the annualised average
rent was 8.08:1. That is if we took the
annual gross figures for rent and divided that into the
average housing price, the average house sold at 8.08
times as much as that rent.
The ratio rose steadily from the mid-80’s on into the early
’00s.Back in ’85, the ratio stood at approximately 5.5:1.
By ’95 it crossed 8:1; by 2000 it was all the way up to
nearly 10:1, and the speed with which the ratio was rising
was itself rising.
In the ’00’s, the ratio began to move nearly parabolically,
for by ’02 it was passing 10:1… or nearly double what it
had been only 17 years earlier. It reached its peak at
15:1 in ’05… Three times what it had been in ’85. At that
point, all common sense was gone when it came to home
pricing. They sky was indeed the limit. It was the year of
the “no-doc/low doc/liars loans” made by the likes of
Countrywide and Golden West Financial, and it was the
peak of The Bubble. It was that year that Mr. Mozillo’s
tan became its most glorious, and it was that year that
created the problem we are now trying badly to unwind.
Further, we can see in another chart compiled by
economy.com … that of price vs. income…. just how
egregious was the madness that reached its peak in ’05
in housing. For the period between 1985-2000, that
average price of the average house in the US sold
consistently at over very near to 1.88 times the average
annual income. The deviations were really very, very
small over that period, if we are to believe Moody’s work,
and we see on reason not to, rarely moving above 1.9:1
and rarely moving below 1.8:1. A move of 0.1 was
material.
However, in ’01, the ratio “broke out” to the upside and
crossed 2:1. By ’03 it was heading toward 2.2:1; by ’04 it
was 2.3:1 and in ’05… the year when it all came undone…
the ratio moved to 2.4:1. It has since fallen back below
2.0:1 and is now down to the lows of the past twenty
five years. The trend, however, remains down as the
Bubble has burst and as real estate punters are
themselves being punted from their positions. It will stop
when it stops, but like markets everywhere, it will
overshoot to the downside before its done. It is trying
even now.