Falling home prices, rising interest rates?

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<p>But here's the thing. Since I purchase my home back in the 80's. I am sure there were market corrections since then, right? So why is it my 70k house back in the 80's is still 600k today?</p>

<p>I am not all that smart. So let me ask this honest question. Are real estate price correlate with other products? If we expect a 40% correction. What about gas price? will that drop 40%. What about a candy bar that cost 50 cents in the 80's and now that same candy bar cost $1.50, will that drop 40%? What about postage stamps, will that drop 40%?</p>

<p>Could it be that price of products have gone up because they're better products now as compare to years past. But gasoline is gasoline and a postage stamp is a postage stamp. So why the price difference? Could it be that a dollar today is not worth the value of a dollar back then? If that's the case, then a 500k condo now is really worth 70k if you were to compare to years ago. In that sense, a 500k condo is not that expensive. </p>
 
reason,





Real estate prices are not correlated with other products, they are however tethered to rents. I suggest you read, <a title="Permanent Link to How Inflated are House Prices?" rel="bookmark" href="http://www.irvinehousingblog.com/2007/03/03/how-inflated-are-house-prices/" linkindex="161" set="yes">How Inflated are House Prices?</a> It will give you a good idea who houses should be valued and how far things are out of whack right now. Also, I suggest you read <a title="Permanent Link to The Anatomy of a Credit Bubble" rel="bookmark" href="http://www.irvinehousingblog.com/2007/05/14/the-anatomy-of-a-credit-bubble/">The Anatomy of a Credit Bubble</a>. It will help explain how we got to where we are today.





House prices have gone up at a considerably faster rate than inflation or wages or rents.
 
You mean real estate prices "should be" tethered to rents, but in fact are often not correlated with rents, as we have seen the past few years. In reality, real estate prices are more a function of credit availability.
 
Reason,



Okay, you’re not that smart. You said it, not me. But let me see if I can support that claim.



First, that $.50 candy bar SHOULD cost $1.50 ($2 actually), per the inflation rate. That $70K house should NOT cost $600K, it should cost about $200K if you follow the same appreciation rate as that candy bar. The assertion is that it should drop 40% because it should NOT cost that much, but it does. Why should the candy bar drop 40%, it didn’t shoot up like housing did. That’s what everyone is trying to tell you. You’ve just argued against yourself.



Second, the product's gotten better statement is just well, “not smart”. How did that $70K house become a “better” product? If your assertion is true, then houses built today should cost $600K, while the comparable size houses built in the 70’s should cost $300K? That makes no sense.



Third, because dollar is worth less now? Hmm… but you just said candy bars & stamps did not go up proportionately to houses. So dollar is only worth less now when buying houses? Or, maybe, I haven’t bought candy bars in a while – do we have to buy them in Yuans now? I didn’t know that…



Now, I don’t believe housing will slide 40%, I’m more in the 25-30% camp. I am not a perma-bear, and I want to buy when I feel pricing is appropriate. I feel that in a year or two, that time will come. So I guess I am a moderate, and therefore encourage bulls like NIR, who usually tend to make reasonable arguments on the other side. However Reason, your reasons aren’t reasonable at all!
 
<p>gepetoh,</p>

<p>That's just it. I agree with your math. I am not looking for an argument. I am just trying to understand. I hope you didn't take it the wrong way. </p>

<p>Like you'd said the 70k house didn't become a "better" product. So why is a 70k house purchased in 1980 is now worth 600k? An honest question.</p>
 
<p><em><strong>"So why is a 70k house purchased in 1980 is now worth 600k? An honest question."</strong></em></p>

<p>Mostly because the lender thinks they do not have any risk associated with the loan, so they will loan any amount.</p>
 
<p>we often speak of a lender as a single person entity, but in fact, it's comprised of many people, many individuals that think differently. would any of you lend somebody 600K for a 1980 home that was worth 70k in 1980? maybe</p>

<p>reason - 99% of the time, the answer to your question for the situation we are in would be FRAUD!</p>
 
I guess this is being misinterpreted. I know someone who had purchased a home in 1980 for 70k. And it's now appraised 600k. It's not just this unit. But the entire neighborhood have appreciated was my point. It was directed at another's posting and after a few responses. The meaning of the question is out of whack. Never mind.
 
reason - I think the responders, including myself understand your question very well. We understand that properties have "appreciated", and you asked why? We gave answers that are indeed indeed answers to your question. They may not be answers that you like or maybe even understand, but I think they are reasonable and correct.<p>

What they are saying is that a home that sold for 70k in 1980 has no more value in 2007 than it had in 1980. What has actually changed is the value of the fiat currency used to purchase the property. If you use the mean price of re over time, you will see it has not "appreciated" in any significant amount compared to the cost of other products or asset classes. This is not real appreciation. It is the devaluation of the dollar. An apple that costs 2 cents in 1930 has no more value than an apple that cost 62 cents now.<p>

And the fraud that has been committed is the government has created this devaluation in order to tax us without a proclamation of tax.
 
Marty - If you are refering to me, I assure you, I have never watched a Robert Kiyosaki infomercial, and your strawman characterization does nothing to detract from my points validity.
 
<p>awgee,</p>

<p>=) after so many responses from others. You finally mentioned what I have been trying to get across. Thanks.</p>
 
reason - maybe you should state your point and not ask a question next time. furthermore, if you would have stated your point, we would have pointed out to you that it was obvious but only semi correct. the additional amount in your "appraised value" was because of all the reasons mentioned in the responses you received.
 
awgee - you answered his/her question. reason was trying to say the the price of homes were justified because of the value of the dollar has decreased! just ignore it. not worth your time.
 
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