Bubblicious Déjà Vu?

Published: Thursday, October 29, 2009 12:33 PM PDT

E-MAIL STORY

I came across this item in the Chicago Tribune business blog this morning and would love to hear what you think.

Robert Shiller, the Yale economist and half of the namesake of the famed home price index, used the word "bubble" this week to talk about August's home price increases:

In an interview on Reuters Television, Shiller said home prices have shot up in recent months to levels that may be unsustainable, and in some parts of the country approach "bubble territory." How could a market down and out for three years suddenly re-inflate into a bubble?

... In San Francisco or San Diego -- bubble territory, by Shiller's reckoning -- prices have advanced firmly past the January level.

Basket-case markets Detroit and Miami, meantime, still clock in well below where they stood in January. As Mr. Bubble well knows, all real estate is local.

Here's some more from Reuters' interview with Shiller.

-- KELLY BENNETT

4 Comments so far on this story...

Many, many young couples couldn't afford to buy a home between 2003 and 2009. Now they can - the percentage of people that can afford to buy a median priced home in San Diego went up from about 17% to about 67% during the last three years. Prices came down by 25-40% in some areas, rates are low, and the $8,000 tax credit helps - not so much with the cost of owning the house, it's only a 2% rebate on a $400,000 home - but it covers some of the cash for closing cost and down payments which young couples in general don't have. I don't expect prices to continue to go up by 2% per month, but I cannot see any reason why those young couples shouldn't continue to buy houses they finally can afford to own.

Posted by Bjorn Endresen | reply to this comment
October 29, 2009 4:41 pm

That statistic you quoted "67% affordability" is a Realtor talking point and comes form the real estate lobby in California, the CAR (California Association of Realtors). A few years back when prices in California housing were out of control the CAR decided to come up with a NEW "affordability index" out was the traditional 20% down payment, out was the fixed interest rate, and out was a reasonable amount of debt to earnings ratio. They had to because the California affordability index was single digits! No one would be dumb enough to sign up for a 30 year debt payment and pay them their commisions if that was the case. What they don't tell you is this new "67%" number relies on an ARM and only 10% down, this is exactly how we got the last bubble, people leveraged themselves to the hilt.

Posted by Mike | reply to this comment
October 29, 2009 8:33 pm

1. I suggest you take a look at The Nerd's Eye View and the statistics showing the ratio between incomes and home prices. They go back to 1977 and as far I (and Rich Toscano) can see we are pretty much back to average. 2. Why would 10% down make a home more affordable than 20% down (as in measuring how large the monthly payments will be compared to your income)? The monthly payments will be higher in the first case, won't they?

Posted by Bjorn Endresen | reply to this comment
October 30, 2009 7:35 am

Hold on to yer burritos, we ain't seen nuthin' yet: link

Posted by Jerry M. | reply to this comment
October 30, 2009 2:15 pm

Reader feedback

Users may post more than one comment, but should not pose as multiple users. Multiple posts from the same IP address but with a different user name on each will be reviewed to determine whether abuse has occurred.
Posts with overly personal attacks or unsubstantiated allegations may be edited or deleted.
Please be patient with the posts -- there may be a delay before they appear on the site -- and make sure to enter the code in the "image verification" box.