Are Real Housing Prices Still High?

Yesterday I showed how the Census Bureau New Home Price Index, adjusted for inflation, was no lower — probably higher — now than it was throughout the 1990s.

Remarkably, several bloggers attack the piece on the basis that the Census Bureau index is supposedly not quality adjusted. That’s a funny claim, because the Census Bureau refers to the index as the “Constant Quality (Laspeyres) Price Index of New One-Family Houses Sold.”

I clearly explained that I chose that index because it dates back far enough to examine other housing cycles (e.g., those in the 1970s and early 1980s), which gives me a historical basis to model how supply and demand would react in various hypothetical situations.

But let’s suppose that one did not want to engage in such an exercise, and thereby had the freedom to use other indices: my conclusion from yesterday — that real housing prices are still high by historical standards — would be even stronger!

To see this, compare the end of 2009 with the last quarter of 1999 or the first quarter of 2000 (that’s as far back as some of the alternative indices go), as I have in Table 3. The last column of the Table has the index I used yesterday, and it shows the LOWEST 2009 real housing price relative to 10 years ago, with one exception. Eight other measures show MORE of an increase over 10 years.

The various national measures disagree much more on the amount by which real housing prices increased 2000-2006, with a range from 20% (Census Bureau quality-adjusted new homes) to 73% (Radar-Logic). A significant part of the disagreement relates to the weighting of the various regions to form the national composite, which is why my Table 3 also reports unweighted averages of the regions, and real price changes for the median region.

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About Casey B. Mulligan 76 Articles

Affiliation: University of Chicago

Casey B. Mulligan is a Professor in the Department of Economics. Mulligan first joined the University of Chicago in 1991 as a graduate student, and received his Ph.D. in Economics from the University of Chicago in 1993.

He has also served as a Visiting Professor teaching public economics at Harvard University, Clemson University, and Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

Mulligan is author of the 1997 book Parental Priorities and Economic Inequality, which studies economic models of, and statistical evidence on, the intergenerational transmission of economic status. His recent research is concerned with capital and labor taxation, with particular emphasis on tax incidence and positive theories of public policy. His recent work includes Market Responses to the Panic of 2008 (a book-in-process with Chicago graduate student Luke Threinen) and published articles such as “Selection, Investment, and Women’s Relative Wages,” “Deadweight Costs and the Size of Government,” “Do Democracies have Different Public Policies than Nondemocracies?,” “The Extent of the Market and the Supply of Regulation,” “What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?,” and “Public Policies as Specification Errors.” Mulligan has reported on some of these results in the Chicago Tribune, the Chicago Sun-Times, the Wall Street Journal, and the New York Times.

He is affiliated with a number of professional organizations, including the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. He is also the recipient of numerous awards and fellowships, including those from the National Science Foundation, the Alfred P. Sloan Foundation, the Smith- Richardson Foundation, and the John M. Olin Foundation.

Visit: Supply and Demand (in that order)

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