A Centrally Important Housing Question Posed to Anyone Who Has a Reasonable Answer?
Why should the same home located anywhere in the United States be worth more today, on an inflation adjusted basis, than it was worth in 1997?
I am talking about the identical house. Same address. No new pool. No marble countertops. Not in a dramatically improved neighborhood. The same house that has been maintained but not upgraded for the past 12 years.
I freely concede that there are unique circumstances that justify sustainable increased prices. San Francisco is a peninsula of fixed size and lots of people would like to live there. Same goes for Manhattan. Florida water-front property is limited and the boomers are starting to retire. Please ignore these scenarios. There is a rationale for prices rising in excess of inflation/income growth in areas of limited supply. Although all three of these examples have risen far in excess of that which is justifiable. I am posing the question for your average run-of-the-mill home.
The price of any asset is determined by market forces. Supply, demand, credit availability, interest rates, inventories, perceived risk, expectations for the future, cultural value, etc... I can think of no price determining market force that is more favorable today than it was in 1997. In fact most are much worse. Yes, population is higher but the growth and inventory of housing units has far outstripped this increase.
I am genuinely interested in anyone who has a logical, well thought out perspective on this question.
I believe this to be as important a question as there is in this Housing and Economic Downturn.
It shouldn't. In fact, it should be worth slightly less than the inflation value due to wear and tear, i.e. termites.
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It's a good question. I can answer from a mother and educator's perspective: if a school district is perceived to be vastly superior to competitors, people will pay a substantial premium to be in it. This brings the price floor of the whole district up.
There are also oddball factors that only locals know about, and won't show up in statistics. For instance, on Chicago's North Shore all of the schools are probably about even in quality, test scores, etc. But most are chopped up in ways many parents don't like: k-3, 4-6, 7-8 (because you may have 3 kids in 3 different schools, etc). So a school district that has a k-8 school may (does) fetch a premium relative to equally good schools.
Other factors that are desirable: walkable shops, services, parks, public transport (commuter train), good government--all relative to comparable neighborhoods.
The economist Daniel McMillen has done some great work on the value of land (teardowns) in built-up neighborhoods that weighs these factors and others. Very interesting stuff.
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The government needs home prices to be higher to perpetuate the delusion that buying a house is a good investment. It's odd because when purchasing capital like a factory or equipment we learn that these must be depreciated to reflect the reduced cost of the structure being allocated to production. The depreciation theory is no good though because the government wants you to get in more debt. If your home price rises you can borrow more through home equity loans and the like. Its odd how the government's propensity to trudge further and further into debt is reflected in the consumer.
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Because appraisers work for commissioned salespeople and have no oversight.
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