Commentary - 03/20/2008

Feds & Real Estate: What Did I Just Read?

You ever notice that you'll be reading some news story and you come across a "huh?" At that moment, you have a "I don't think that's right" thought? Well, depending on the significant, you can file that thought away or start right in to check it out for yourself. I had one of those last night.

I was reading an article in the New York Times "Even Experts Canít Grasp This Crisis" and came across this statement:

All these investments, of course, were highly risky. Higher returns almost always come with greater risk. But people ó by ďpeople,Ē Iím referring here to Mr. Greenspan, Mr. Bernanke, the top executives of almost every Wall Street firm and a majority of American homeowners ó decided that the usual rules didnít apply because home prices nationwide had never fallen before.
Nah, that can't be right. Surely these professionals, with THEIR economic backgrounds, immediate access to information via their staffs, and their own studies of the Great Depression surely didn't miss this simple economic fact. I'd hate to think they lied about it. Now I will go along with the majority of American homeowners thinking such things.

Anyway, I thought a little research of my own would be in order. Didn't take too long, and here's what I found out.

As shown below, the average cost of a home nationwide dropped 52% from 1930 to 1935, and it took 18 years to fully recover. It's also interesting that average wages dropped 21% from 1930 to 1933, then steadily increased. And the cost of a gallon of gasoline never dropped, but held steady for ten years and then increased 60% over the next nine years.

YearAverage Cost Of HomeAverage Wages/YearAverage Cost Of Gas
1930 $7,145.00$1,970.0010 cents
1931 $6,790.00$1,850.0010 cents
1932 $6,510.00$1,650.0010 cents
1933 $5,750.00$1,550.0010 cents
1934 $5,970.00$1,600.0010 cents
1935 $3,450.00$1,600.0010 cents
1936 $3,925.00$1,713.0010 cents
1937 $4,100.00$1,780.0010 cents
1938 $3,900.00$1,730.0010 cents
1939 $3,800.00$1,730.0010 cents
1940 $3,920.00$1,725.0011 cents
1941 $4,075.00$1,750.0012 cents
1942 $3,770.00$1,880.0015 cents
1943 $3,600.00$2,000.0015 cents
1944 $3,450.00$2,400.0015 cents
1945 $4.600.00$2,400.0015 cents
1946 $5,600.00$2,500.0015 cents
1947 $6,600.00$2,850.0015 cents
1948 $7,700.00$2,950.0016 cents
The Professional Builder wrote:
From the heights of 1929, the home building market dropped 90 percent in the first four years then flattened out for the middle part of the decade.
Wow, I sure hope that we don't go through that!

NOTE: When I was re-checking the link to the original article, I saw that this story has been picked up by others too, for instance: International Herald Tribune

I had written a polite letter to the journalist last night at 11pm and included this information, but as of posting this commentary today (1pm 3/19/08), had not received a reply. So I guess most folks will just have to believe that home prices have never fell. Until they fall again.
Maybe this is why: Sometimes The Dragon Wins

© 2008 by Edward Ulysses Cate
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