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I just can’t stay away from that historical data. Various questions about what happened before, during, and after the circa-1990 boom/bust cycle inspired me to put together a long-term view of what’s gone on in our housing market.
The first chart below displays the change since 1977 (the earliest year for which all data is available) in San Diego home prices, monthly payments, and rents. Mortgage rates are also measured on the right axis of the chart.
This next chart features the same information, but home prices, payments, and rents are adjusted for inflation. This chart is probably the more useful of the two as it really shows how expensive these items have been over time compared to everything else. Again, interest rates are measured on the right side.
The dramatic nature of our recent housing boom is obvious. Since the bottom of the last housing bust, at which point housing was admittedly quite undervalued, real (inflation-adjusted) rents increased by 20 percent. During the same period, real home prices rose by 138 percent and real payments on those homes, softened somewhat by declining rates, increased “only” 112 percent.
After 2003 (when mortgage rates hit bottom, speculative furor really took off, and homes were decidedly not undervalued) the disparity between the costs of owning and renting got even more notably out of hand: during this time real rents rose by just 1 percent, compared to a 32 percent rise in real home prices and a 41 percent rise in real mortgage payments.
Housing bulls are quick to point out that real monthly payments aren’t quite as high now as they were in the early 1980s. But take note of the red line – the last time payments were at this level, we weren’t far below all-time high mortgage rates. The sharp ensuing drop in rates provided a tailwind to home prices the whole way. Today’s gargantuan house payments take place when mortgage rates are near their all-time lows. Big difference.