May 24, 2011
Harvard’s Joint Center on Housing, which became famous for its failure to recognize the housing bubble, apparently still has no understanding of the housing market. An article by the Associated Press that refers to analysis done by the Center fundamentally misrepresents trends in the housing market.
It tells readers that:
“From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002.”
Actually from the 1953 to 1996 house prices just rose in step with the overall rate of inflation according to the Bureau of Labor Statistics home price component (eliminated in 1981) and Federal Housing Financing Authority’s House Price Index. The entire increase in real prices occurred during the bubble years from 1997 to 2007. This means that prior to 1996, homeowners had no reason to expect price appreciation in excess of inflation.
The article also tells readers that:
“Before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas, according to Moody’s Analytics. Today, by contrast, it’s cheaper to rent in about 72 percent of metro areas.”
This is complete nonsense. House prices have plummeted since the bust and interest rates are lower today than at any point prior to the collapse of the bubble. There is no consistent methodology that would show that the cost of renting has fallen relative to the cost of ownership.
The article also asserts that:
“the median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010.”
This is misleading because this figure does not control for the quality of the units on the market. The Bureau of Labor Statistics rental index, which does control for quality, rose at just over a 2 percent rate during this period.
[Addendum: A reader has called to my attention the fact that the comments cited in this post may be from AP alone and do not refer to the joint analysis with the Harvard Center that is cited at the beginning of the article.]