The housing market: everything you know is wrong
Posted by metaphorical on 4 March 2007
The power of graphical representations to drive complex relationships straight into the understanding is often nothing short of amazing. I’ve mentioned Strange Maps before; last month’s selection included a terrific map showing right-handed vs left-handed driving. Almost in passing it gives a U.N.-level representation of the decline of the British Empire and the coincident American Century.
Dark blue: drives on left (mainly British ex-colonies).
Light blue: used to drive on right, now on left (Namibia).
Purple: used to have mixed system, now drives on right.
Light red: used to drive on left, now on right.
Dark red: drives on right.
The countries still in blue are all former colonies, as are a couple of the purples—most prominently Canada, which I didn’t know ever drove on the left, though after thinking about it for a moment; of course they did! And it certainly makes you want to run to Wikipedia and see what the hell Namibia’s story is. (Apparently it started out as a German colony and ended up under South Africa’s control after WWI. And indeed, Wikipedia gives 1918 as the year it started driving on the left.)
Not all graphical representations are maps. Some are, well, graphs.
For about a week I’ve been looking at “A History of Home Values.” In a single wavy line, it calls into question most of what I thought I knew about residential real estate as an investment.
For example, “A home is a good investment.” Uh, no. It wasn’t for most years between 1890 and the end of WWII. Since then, it’s kept up with inflation, but every spike has been met with a decline. I always thought the effect of the up and down was always a net up—not so until then early 1990s. Then, home prices started a steep upward movement that never wavered.
Looking at the graph you see that the current housing boom is so unconditionally aberrantly anomalous that anything you thought you know about the market is surely wrong, or at least, unsupported by anything like historical antecedent.