# U.S. Housing Prices Now Back to 1895 Levels Adjusted for Inflation



## Belguy (May 24, 2010)

Adjusted for inflation, U.S. housing prices are now back to where they were in 1895!!

http://www.smartmoney.com/spend/rea...ont-recover-1335877657114/?link=sm_newsticker

Housing is not an investment. It is a place to live.


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## Just a Guy (Mar 27, 2012)

Investing for capital gains is not an investment, it's gambling. Investing for cash flow is different I'd argue.


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## andrewf (Mar 1, 2010)

Real returns on real estate have to be zero or damn close to zero in the very long run.

Otherwise, a starter house in Rome in 12 AD (say equivalent to $200k in today's dollars) at even 0.25% real returns over the last 2000 years would be worth $29.5 million today. Exponential functions are inexorable. 

By the same measure, if we take the average $400k home in Toronto today, and take the real growth rate over the last 10 years or so at say 5%, if you project that forward 100 years, the average house would be worth $52.6 million in today's dollars. Simply put, real estate cannot have significant real price appreciation over long time horizons. All the ups and downs of the markets are just speculation around a mean that house prices eventually revert to.


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## fatcat (Nov 11, 2009)

the way i read that is that owning a house is a great hedge against inflation ...


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## HaroldCrump (Jun 10, 2009)

fatcat said:


> the way i read that is that owning a house is a great hedge against inflation ...


Maybe over very long term timeframes.
Housing prices are often negatively corelated to interest rates, and interest rates are positively corelated to inflation.
In other words, higher inflation leads to lower demand for home ownership and thus lower prices.

Except these days, of course, where everything is standing on its head.
This cycle/theory may have broken down in the last 10 years or so because of the debt bubble, which has acted as an external stimulus to this process.


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## fatcat (Nov 11, 2009)

HaroldCrump said:


> Maybe over very long term timeframes.
> Housing prices are often negatively corelated to interest rates, and interest rates are positively corelated to inflation.
> In other words, higher inflation leads to lower demand for home ownership and thus lower prices.
> 
> ...


right harold, i think everything has broken down and if this thing doesn't break (one way or the other ... i guess i can learnt to live in a tent and eat acorn pie) *i* am going to break ... i really do fully understand people who put it all in gic ladders even at 2.6% for 5 years !!!!!

my strata fee just jumped 10% .. groceries are through the roof .. costs are up everywhere

i think we are in *stagflation*


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## andrewf (Mar 1, 2010)

Houses are a hedge against inflation in that quite aside from the value of the property, it 'pays' a stream of housing services (ie, rent), which will tend to increase with inflation.


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## andrewf (Mar 1, 2010)

fatcat said:


> groceries are through the roof .. costs are up everywhere


People say this all the time, and I don't doubt that it is true for some subsets of groceries (beef is up sharply, vegetables were for a time), but the weird thing is that it doesn't seem to show up in the revenues of the big grocers. If food prices were inflating rapidly, wouldn't their revenues be growing as well? After all, their revenues should be growing by roughly population growth and inflation.

So unless they are all complicit in the government conspiracy to hide inflation...


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> So unless they are all complicit in the government conspiracy to hide inflation...


Inflation is hiding in plain sight.
You are talking about the CPI, but that does not measure inflation for the items that truly matter to households.
It measures a mythical "basket" of goods, which is subject to all sorts of biases.
In fact, the CPI will reflect falling prices for non essential goods and services as the prices of essential goods and services rise because of reduced demand for consumer items.



> People say this all the time, and I don't doubt that it is true for some subsets of groceries (beef is up sharply, vegetables were for a time), but the weird thing is that it doesn't seem to show up in the revenues of the big grocers. If food prices were inflating rapidly, wouldn't their revenues be growing as well? After all, their revenues should be growing by roughly population growth and inflation.


The grocers are not making any profits because they are not the ones adding the markup to the food prices.
Their costs for procuring those goods have increased as well.
The food wholesalers are not making any profits either for the same reason...the price increases go up the chain.


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## Sampson (Apr 3, 2009)

HaroldCrump said:


> You are talking about the CPI, but that does not measure inflation for the items that truly matter to households.
> It measures a mythical "basket" of goods, which is subject to all sorts of biases.
> In fact, the CPI will reflect falling prices for non essential goods and services as the prices of essential goods and services rise because of reduced demand for consumer items.


While I agree with you Harold, that CPI is a very poor measure of the effect of inflation on an average consumer, I also don't believe any measurement of inflation (say bananas up from $0.57 to $0.77 over the past 2 years - 35%) is relevant without the context of how much effect it has on the average household budget. No one I'm aware of at least the government doesn't) track this type of information. So to say inflation is here without knowing how big of an impact it has is also as meaningless as the CPI.

TVs, cars, and other larger consumer items have been falling in price.


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## andrewf (Mar 1, 2010)

Harold, I did not say profits. I said revenues. 

The grocery retailers are like pipelines for food. Their volumes are pretty steady (people eat basically the same amount of food), so changes in revenue for the industry are driven by population growth, inflation, and some trading up/down in terms of quality.

The entire cost to the consumer (except perhaps HST on some items) shows up in the revenues of the big grocery retailers. And their revenue growth has not exactly been off the charts. So unless they are fudging their financials (and making themselves look worse to their investors) to reduce revenues, I don't think they are complicit in a government conspiracy to hide inflation. Those are cold hard numbers, not anecdotes.


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## fatcat (Nov 11, 2009)

andrewf said:


> People say this all the time, and I don't doubt that it is true for some subsets of groceries (beef is up sharply, vegetables were for a time), but the weird thing is that it doesn't seem to show up in the revenues of the big grocers. If food prices were inflating rapidly, wouldn't their revenues be growing as well? After all, their revenues should be growing by roughly population growth and inflation.
> 
> So unless they are all complicit in the government conspiracy to hide inflation...


andrew, you are assuming that people are eating and shopping exactly the way they used to and then yes, the 2% (or whatever it is) that grocers make would be going up but the fact is that people have seriously changed their eating habits and what they buy in order to cope with prices ... they are buying cheaper food and smaller packages and retailers are changing package sizes to make them look the same but actually are smaller than before so prices don't go up ... i absolutely think we are in something like stagflation


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Harold, I did not say profits. I said revenues.
> The grocery retailers are like pipelines for food. Their volumes are pretty steady (people eat basically the same amount of food), so changes in revenue for the industry are driven by population growth, inflation, and some trading up/down in terms of quality.


Yes, you did say revenues, my bad.
If you are referring to large, public corporation grocery chains like Loblaws, Wal-Mart, etc. their top line revenue is an aggregation of all sorts of merchandise.
More and more groceries chains are now in the general merchandise, electronics, clothing, gasoline, and other businesses.
Loblaws, for instance, makes more margins from their Joe Fresh brand of clothing than other stuff.

As fatcat said above, there are many consumer behavior factors at play, including substitution, cross-border shopping, etc.

Following is statscan food basket retail prices from 2008 - 2012:
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/econ155a-eng.htm

You can see that it's not just the meats - pretty much every food group has experienced substantial food inflation.
Coupled with stagnant, or even falling, nominal wages, these numbers are not good for households.

In the data above, I don't know what brands they have used for their baseline, so there is probably some quality/brand substitution effect as well.

Gasoline inflation is another key area of inflation that affects households very negatively.
That one is through the roof, and it is not just the crude oil prices that is driving that.


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## andrewf (Mar 1, 2010)

Their revenue growth as an industry has been lower than CPI food subindex, so that doesn't exactly bolster the argument that CPI underestimates food inflation.


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## kcowan (Jul 1, 2010)

International house prices:








which suggests that the US is among the lowest of major nations.

Source

Note that Vancouver is second only to Hong Kong is unaffordability.


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