Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 4
Vancouver employment earnings up 63% in the last 17.7 years (2.8%/year), single family dwelling prices up 360% (9.0%/year).
You missed a few other important terms in the equation.
House Prices = Employment Earnings / Interest Rates (x (Somewhat) Constant)


I'm not sure that's an outstanding fit to the observations.
Many a bubble took off without any meaningful income or interest rate change.

Real interest rates certainly matter to current affordability and prices, but they seem to have surprisingly modest explanatory power for medium to long time frames.
Real interest rates plummeted in the 20th century in the US, but there was almost no net change in real house prices.

Over long periods, there is pretty reasonable mean reversion to rents, and also to median income, for most "ordinary" places in the world.
Since assessing bubblishness requires some sort of long run yardstick with reasonable stability, most observers use one and/or the other of those.

The exceptions to to typical income are a few places where, like a moat, people perceive no close substitute and the number of people wanting that property rises inexorably, seeming to cause a forever upward trend in real prices.
Prime Central London or the Upper East Side, for example.
Hmmm...I suppose that even in those places, there's probably some correlation to the income of the pool of possibly interested buyers.

Jim
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.