home prices in the United States have almost exactly kept up with inflation

A chart that overlays NYC one-bedroom co-ops' data over Case-Shiller measures (note: produced in March and tracing back to 1987).

http://www.strugglefour.com/wp-content/uploads/2009/03/realestate1992eq.gif

Inflation vs home prices. It does provide an interesting valuation yard stick.

What the graphs prove:

even a broken clock its right twice a day.

why is inflation up and RE is down?

"What the graphs prove: even a broken clock its right twice a day."

So as the bells toll the midnight hour, it is prudent to avoid the sirens' song of "prime time for buying."

What this proves is buying blind to value whether its real estate or stocks is a bad thing. Whether you want to call it an investment or not is semantics. Buying a home at a high cap rate/low rent multiple is a smart use of cash...Particularly in the late 1990s when stock valuations promised low or negative returns.

Good Wall Street Journal write-up.
Found that before expenses real estate slightly out-performed. They say take out the condo fees and taxes and it looks worse, but why not exclude as a type of rent one would have to pay if not owning...

http://online.wsj.com/article/SB124336746233955539.html

Yet look at the numbers. Since 1987, when the Case-Shiller index of 10 major cities begins, it's risen from an index value of 63 to 151. Annual return: Just 4.1% a year. During that period, according to the Bureau of Labor Statistics, consumer prices rose by 3% a year. Net result: Home prices produced a real return of just 1.15% a year over inflation over that time.

I find it interesting that while almost everybody on wall street knows they are ripping off the client, it seems the majority of real estate brokers feel buying property is a guarenteed path to wealth. You talk to a derivatives trader he/she can explain why options are a waste of money, why trading costss you more than it benefits, etc... RE brokers do not appear to understand exactly how their scam works as they are caught up in it as much as their clients are.

Bringing facts to the table seems to only anger brokers.

80sman you are obviously not on Wall Street or in real estate.

What do you do?

30yrs... yeh, .138% correct on a minute basis... WTF? I believe I am correct on RE more than 50%, or else I wouldn't be so "successful." ON this bubble and subsequent slow grind to $500psf, 100% correct... sit back and wait.

80sMan, like the name says, sells crack... nice to meet you duracell, WTF do you do for a living... are your wrists sore? fluffer or borker turning keys????

National Association of Realtors is worse than the Tobacco Lobby, for one big reason. Nobody pretends the tobacco lobby advances an agenda that benefits the country...

Brokers refuse to give an inch on their commission, yet feel no shame in having the government hand out other people's money to facilitate a sale.

When times are good they tell the buyers they need to buy and owners its time to trade up. When times are bad they tell owners to sell, and buyers its a buyers market.

Leeches? At least Wall Street sales people admit they take advantage

I work on Wall Street.

I wouldn't even think to assume someone works as a fluffer, but you did perhaps because it hits too close to home?

close as in your mama? lurcell?

"Brokers refuse to give an inch on their commission,"

Don't let facts get in the way of your rhetoric.

http://www.usdoj.gov/atr/public/press_releases/2009/245505.htm

WASHINGTON — The Department of Justice announced today that it has reached a proposed settlement with Consolidated Multiple Listing Service Inc. (CMLS) that requires CMLS to change its rules to allow low-priced and innovative brokers to compete with traditional brokers in the Columbia, S.C., area. The Department said the rules caused consumers to pay more for residential real estate brokerage services in the Columbia area.

The Department's Antitrust Division filed its proposed settlement in U.S. District Court in South Carolina. If approved by the court, the proposed settlement would resolve the Department's antitrust concerns.

"Today's settlement will remove unlawful impediments to competition for real estate brokerage services in the Columbia area and will lead to more choices and lower brokerage fees for South Carolina consumers," said Christine A. Varney, Assistant Attorney General in charge of the Department's Antitrust Division. "For most Americans, purchasing a home is the most significant purchase of their life. This settlement demonstrates the Department of Justice's continuing commitment to preserve competition in the real estate brokerage industry."

A multiple listing service (MLS), like the one operated by CMLS, is a joint venture of real estate brokers that combines its members' home listings information into an electronic database that is made available to all member real estate brokers. This database serves as a clearinghouse for the members to communicate important information among themselves, such as descriptions of the listed properties for sale and offers to compensate other members if they locate purchasers for those listings. In addition, the database allows member brokers who represent buyers to search for nearly all the listed properties in the area that match the buyer's needs.

Because the MLS's database is the primary source of home listings information on virtually every home listed for sale in a given area, access to the database - and therefore MLS membership - is critical for any real estate broker seeking to serve clients successfully in the MLS's service area. Consequently, the rules adopted by the MLS governing who can be a member and how members must behave can have a significant impact on competition among real estate brokers in the area served by the MLS.

In May 2008, the Department's Antitrust Division filed a civil antitrust lawsuit against CMLS in U.S. District Court in South Carolina, challenging policies and rules that restrained competition among brokers in Columbia in several ways. CMLS imposed burdensome prerequisites to membership that prevented some real estate brokers, such as those who would likely compete aggressively on price, from listing homes for sale in the MLS's database, ensuring that those brokers could not compete in the Columbia area. CMLS required applicants for membership to discuss the nature of their businesses with a committee of incumbent members and reserved the power to deny membership to brokers who they feared would compete too aggressively. CMLS also stabilized the price of brokerage services by forcing its broker members to provide a full set of brokerage services regardless of whether a client wanted the required services. The Department said that those rules prevented consumers from receiving the full benefits of competition, discouraged discounting, and threatened to lock in outmoded business models.

The proposed settlement with CMLS requires it to change those rules and prohibits it from adopting new rules that exclude real estate brokers from membership based on their business models or price structures. CMLS must allow any broker holding the appropriate license under South Carolina law to become a member and cannot continue to exclude brokers based on their business models. It will repeal rules that denied Columbia-area home sellers the ability to hire a real estate broker to perform only the specific services the seller desired, at a lower cost than the seller would pay a traditional, full-service broker. CMLS also will repeal its requirement that its member brokers use only the single contract approved by CMLS, which blocked home sellers from alternative arrangements that allowed them to avoid paying any commission to their broker if the sellers found buyers for their homes.

The proposed settlement, along with the Department's competitive impact statement, will be published in the Federal Register, as required by the Antitrust Procedures and Penalties Act. Any person may submit written comments regarding the proposed final judgment within 60 days of its publication to John R. Read, Chief, Litigation III Section, Antitrust Division, U.S. Department of Justice, 450 5th Street, N.W., Suite 4000, Washington, D.C. 20530 (Tel: 202-307-0468). At the conclusion of the 60-day comment period, the court may enter the proposed final judgment upon a finding that it serves the public interest.

The exception proves the rule: the DOJ went after that ONE MLS for that practice. To me, it's more proof that it's NOT happening everywhere else. And since this board is REALLY about Manhattan (and a little Brooklyn), citing a case against Columbia, S.C. MLS is highly irrelevant.

That chart that you show, angler7, is very sobering.

http://www.strugglefour.com/wp-content/uploads/2009/03/realestate1992eq.gif

Even though you can perhaps make the case for at least some "re-rating" of Manhattan prices, this is scary! I just can't understand how such prices can continue.

what's the rational in using consumer price inflation as a baseline as supposed to wage inflation?

Not sure about CPI vs Wage inflation, but many asset classes closely track inflation over long periods of time +- a few percentage points. When the returns deviate too much over several years, it becomes one warning sign.

That's the convention, admin.

But it doesn't make much difference as wages have been closely tracking inflation in recent years.

For the 10 years ending June, 2009 the traditional CPI had increased at a compound annual rate of 2.64% and the CPI-Wages had increased at a rate of 2.62%.

the CPI-W is not wage inflation, it's the inflation of the basket of goods usually bought by those urban wage earners and clerical workers. that's why is so similar, basically it's the same CPI with slightly different weights.

"Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)"

"wages have been closely tracking inflation in recent years."

this is really not true during the last 25 years (also women labor participation already peaked, for those that claim that the switch to dual income households compensates for the lack of wage inflation). it's part of the problem of depending on debt to sustain a standard of living wages cannot sustain as they used to. gross wages do track inflation better if you include health care benefits to net wages, but you shouldn't do that to compare house prices as $ spent in health care is $ that cannot go into housing.

Thanks - my mistake. I've just looked at a chart of YOY wage changes and it "looks" similar to CPI "on average" for the past 10 years - albeit with large tracking error. I'll try to get the actual number.

just throwing this out there as an academic thought. As inflation is a measure of perpetually increasing cost of living (food, housing, clothing, etc.) and housing is by far the most expensive component of household income and net wealth, isn't it certain that they must track each other on a national average basis? Not to say you could not beat inflation with a specific RE investment and with the addition of leverage, but prices should track inflation. It is leverage that makes the investment exceed inflation.

The Consumer Price Index does indeed have a real estate component - it follows rent. The costs of home ownership are not factored in to inflation, only rent. So if you think rents and sale prices should grow or decline more or less proportionally, then yes, housing prices should also track inflation.