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Here's an interesting chart on overblown US house prices

Posted in News

A hattip to Henry Blodget (never thought I'd say that) for pointing out this Robert J Shiller chart showing just how overblown US house prices became and the scale of the resulting fallout on the global economy now they're collapsing.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments. Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making these comments.

Looks like the Barfoot &

Looks like the Barfoot & Thomson "Facts in Real Estate" graph.... with an extra year tacked on.

I note B&T don't have the integrity to update and rerelease that graph...

I just did a quick

I just did a quick graph based on available NZ data using an index of 100 and a base year of 1962.

From 1962 to 1972, no growth above inflation.
From 1972 to 1974, growth to 174.
From 1974 to 1980, the index falls back down to 100.
From 1980 to 1992, growth to 110.
From 1992 to 2001, growth to 150.
From 2001 to 2008, growth to 272.

The curve then begins to fall sharply. AS at Q3 2008, its at 240.

Well done for making the

Well done for making the effort to adjust for inflation (I am too lazy). Lookng through the booms it is hard to justify much more than 2% over inflation. The kicker is that real prices have to fall by at least another 15% to get to that level ... assuming they don't overshoot.

Here's an interesting link I

Here's an interesting link I came across today:

http://www.howtosellyourhouse.net/value.html

Its an American site, but the concept is interesting in that it is based on a historical price to earnings P/E ratio for houses, being about 15%.

You enter a realistic (monthly) rent, and it calculates a realistic price for your house.

Plot the chart to Rollercoaster

Plot the chart to Rollercoaster Tycoon and this it how bad it looks:

http://www.youtube.com/watch?v=kUldGc06S3U

That's up until 2007 anyway. Unlike the forecast trend line above, I reckon you're more likely to see an over-correction rather than a levelling out.

What I find fascinating is that the trend, outside boom and bust, seems to lie in a 20 point margin of the index. It tends to blow the myth that homes are a guaranteed money spinner in real terms.

Multiply the weekly rental returns

Multiply the weekly rental returns by 600 for a poorly maintained house in a bad street. For a well maintained house in a good street, multiply the weekly rental return by 800. This is the right price for the house. The above thumb rule works very well. There are always exceptions such as a house having subdividable land etc.

IanC - yeah good point!!!

IanC - yeah good point!!! I walked past a B + T office the other day and they had that graph showing the ever rising growth of house prices in Akld, but as you say surprise surprise they haven't shown the 10% drop!
Rotten scoundrels

forgive me if i'm an

forgive me if i'm an idiot, and this is already possible -- could we get the URL to the original graph, or make the image clickable to bring up a bigger copy. Yes, I wear glasses and i'm proud..

George, the following is the

George, the following is the link for a full zize graph. I also wear glasses..

http://static.10gen.com/businessinsider/~~/f?id=49a02ccc796c7afa009b4708