» Real house prices will take 90 years to reach the peak absent another housing bubble

It's no shock, but the fact is house values, prices whatever you want to call them will be low for a very very very long time.  There is no contrarian opinion::

One of the more esoteric debates on the fundamental value of houses centers on whether or not houses appreciate faster than the overall rate of inflation. Nobody who isn’t kool aid intoxicated believes house prices rise much more than the level of inflation because intelligent people understand trees cannot grow to the sky. If house prices consistently went up in value faster than price or wage inflation, over time, people would lose their ability to afford to buy houses because debt-to-income ratios would have to rise to accommodate the higher prices. No, this debate is whether or not prices rise slightly above inflation or not at all. The reason this debate is important is because if you project forward off the last bottom in 1997 to today, the slope of that line determines where fundamental value falls today. Even a small change in the underlying rate makes a large difference when projected 15 years into the future.

Dr. Shiller’s graph of real house prices suggests that prices have not risen when adjusted for inflation over the last 120 years. There have certainly been periods when this was true. When examining the last 30 years of data, it appears house prices have risen faster than inflation. In my opinion, there are two plausible answers for why house prices have risen faster than inflation over this period. First, there has been much more new construction over the last fifty years than in the 70 years which preceded it. New construction always sells for a higher value, so aggregate values go up. In theory, Case-Shiller corrects for this phenomenon by looking at the prices of individual homes. This is one reason Case-Shiller is more accurate than tracking the median to evaluate the relative price change of specific houses. Second, and more importantly, interest rates have declined dramatically and steadily over the last 25 years. Some amount of the gain is due to lower borrowing costs. House prices are bound to inflate faster than incomes rise when borrowing costs decline over a long period of time.

» Real house prices will take 90 years to reach the peak absent another housing bubble » OC Housing News