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A Surprising Look at 100+ Years of Home Prices

By Dr. Steve Sjuggerud
Monday, March 19, 2007

We really have experienced the greatest real estate boom in U.S. history, if the figures are to be believed. Take a look...

130 Years of Home Prices

The only other housing boom of any real magnitude was the World War II boom. But it doesn't come close to what we've just gone through...

The figures should be believable... They are from Yale professor Robert Shiller, who is both a well-known financial historian and the creator of the Case-Shiller Weiss real estate price indexes. Shiller's real estate indexes are thought to be the best available (speculators note: You can even trade futures and options on these indexes on the CME).

Looking back over the history of real estate, a few things strike me. First off...

1) Contrary to popular belief, real estate prices don't always go up.

Everyone knows that "you can't lose money in real estate," right? But this chart doesn't show that... so what's going on?

This chart is adjusted for inflation. So for example, even though homes prices went somewhat higher in the 1990s, the reality was, home prices didn't keep up with inflation in the 1990s.

2) The price gains on this chart don't account for the increase in the size of houses.

The chart makes it look like home prices were flat from roughly 1950 until 2000. But I don't believe this is accurate. The home of 1950 doesn't compare with the home of today...

In 1950, the average home in America was 983 square feet. It had two bedrooms and one bath. It was short on modern amenities – nobody had a dishwasher or air conditioning.

By 1970, the average home size jumped to 1,500 square feet. It had three bedrooms and one-and-a-half baths. One in three homes had a dishwasher and air conditioning.

Nowadays, the average home is two stories. It's around 2,500 square feet, with at least two-and-a-half baths, and a two-car garage. We've come a long way since 1950.

When you think about the dramatic increases in the size of homes and the innovations (like air-conditioning and dishwashers) that are now standard features, it is hard to believe that home prices didn't rise on average for the second half of the 20th century.

It's possible that the great boom that we've seen in home prices since 2000 – the greatest in the history of our nation – is really home prices simply making up for lost gains of the second half of the 20th century.

One possible explanation is that house prices were really cheap in 2000 – as they hadn't done much in a very long time. That would suggest the boom we're in was apparently kicked off for sound reasons.

Looking ahead, is the housing boom over completely? Or will there be another leg higher? We'll continue to comment on the housing market when we find something interesting to share going forward.

But looking back, consider this...

We're in the greatest boom in history, after going through an extended period when housing prices didn't do much. During that period, essentially the second half of the last century, homes nearly tripled in size. 

That could mean that homes were ridiculously cheap by the end of the 1990s. And that could be the real foundation for the great boom we've seen...

Good investing,


Market Notes

Quilmes (LQU)... Argentine beer
CF Industries (CF)... agricultural chemicals
Mosaic (MOS)... agricultural chemicals
Terra Industries (TRA)... agricultural chemicals
National Oilwell Varco (NOV)... oil rigs
Dawson Geophysical (DWSN)... oil services
GulfMark Offshore (GMRK)... oil services
Magellan Midstream (MMP)... oil & gas pipelines
Enterprise Products (EPD)... oil & gas pipelines
Kayne Anderson (KYN)... oil & gas pipelines
Stryker (SYT)... medical devices
Baxter International (BAX)... medical devices
Quanta Services (PWR)... electrical contractor
Phelps Dodge (PD)... mining
POSCO (PKX)... Dan Ferris Extreme Value pick
American Real Estate Partners (ACP)... Dan Ferris Extreme Value pick
Nickel, Tin


Waste Management (WMI)... garbage
H&R Block (HRB)... tax services
M&T Bank (MTB)... Warren Buffett holding
Washington Mutual (WM)... banking
CompuCredit (CCRT)... credit services
AmeriCredit (ACF)... credit services
Progressive (PGF)... insurance
HomeBanc (HMB)... mortgages
IndyMac Bancorp (NDE)... mortgages
Group 1 Automotive (GPI)... car dealer
Sugar, Lumber

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