The above chart estimates the market value of today's median-priced house over a 20-year period.
The red line represents real house prices. For those unfamiliar with economic-speak, "real" prices are prices that have been adjusted for inflation. The blue line represents nominal house prices.
Notice that in the 13-year period from 1987 until 1999, real house prices stayed roughly within the range of $125,000 to $150,000. Only since the year 2000 have real house prices risen above the top of this range. The United States median price was at approximately $206,200 as of the fourth quarter of 2007. This is 38% higher than the previous housing boom peak of an inflation-adjusted $149,300 in 1989.
Yale University economics professor Robert Shiller produced a similar graph depicting over 115 years of inflation-adjusted U.S. housing prices. You can view the graph here.
View housing price graphs for major metropolitan areas:
Other housing bubble resources:
Blogs
- Realty Check with Diana Olick, CNBC
- The Housing Bubble, TheHousingBubbleBlog
- Hot Property, BusinessWeek
- Professor Nouriel Roubini's Blog, RGEMonitor
- Bubble Meter, Blogspot
Video
- Real Estate Roller Coaster (Fun!), SpeculativeBubble.com, 4/2/2007
- Real Estate Bubbles, Part 1, Department of Economics, Humboldt State University, 11/30/2006
- Real Estate Bubbles, Part 2, Department of Economics, Humboldt State University, 11/30/2006
- Real Estate Bubbles, Part 3, Department of Economics, Humboldt State University, 11/30/2006
- Housing Bubble Interview, First Business Morning News, 11/3/2006
- Princeton Economist Paul Krugman on the Housing Bubble, The Bloomberg Report, 9/10/2006
- Economics Roundtable: Housing Boom or Bubble?, University of California, San Diego, 4/3/2006
- Bubbles (Stocks & Housing) and How You Can Protect Yourself, CEPR, 11/10/2005
Economic Analysis
- The Subprime Lending Crisis, Joint Economic Committee, 10/2007
- 2007 Housing Bubble Update: 10 Economic Indicators to Watch, CEPR, 2/2007
- The Menace of an Unchecked Housing Bubble, CEPR, 3/30/2006
- Will a Bursting Bubble Trouble Bernanke?, CEPR, 11/8/2005
- Is There a Housing Bubble?, CEPR, 9/12/2005
- That Hissing Sound, The New York Times, 8/8/2005
- The Housing Bubble Fact Sheet, CEPR, 7/2005
- The Global House Price Boom, International Monetary Fund, 9/2004
- When Bubbles Burst, International Monetary Fund, 4/2003
Data sources and methodology:
- Latest quarterly, median, existing, single-family home price provided by the National Association of Realtors.
- Trailing house price index data provided by Standard & Poors.
- Inflation data provided by the U.S. Department of Labor's Bureau of Labor Statistics.
The chart on this page estimates the market value of today's median-priced house over a 20-year period. The trailing nominal prices are derived by taking the recent median price of existing single-family homes, as reported by the National Association of Realtors, and discounting it by the S&P/Case-Shiller Home Price Index. The S&P/Case-Shiller HPI is a "constant quality" index, so even though houses are built larger today than they were 20 years ago, this graph automatically adjusts for this variation. The trailing real prices are then derived by adjusting the nominal prices by the CPI - all items less shelter.
The measurement of inflation-adjusted housing prices is just one of several tools that can be used to determine if there is a housing bubble. Other possible tools are: measuring historical price-to-rent ratios, measuring changes in residential real estate prices versus commercial real estate prices, and measuring changes in housing affordability.