Economist Thomas Lawler says the housing chart that everyone’s been obsessed with over the last couple of years (see lower line right) is “bogus.”
Because professor Robert Shiller had to use multiple data sources when compiling it.
Lawlor says house prices have actually done better than Shiller says over the past 60 years (upper line above right). Shiller stands by his work, saying Lawlor’s not accounting for the fact that houses are better than they used to be (they have electricity now, for example).
Either way, it doesn’t make much difference. Both charts suggests that we’re in the last death throes of the biggest housing bubble in history. And both charts suggest that, even after a 30% fall, house prices are still at least 10% above fair value.
The WSJ has a larger interactive version of the chart here >
WSJ: Mr. Lawler, a former Fannie Mae economist who now is an independent consultant in Leesburg, Va., says the BLS data used by Mr. Shiller was based on a “very small sample” and so isn’t reliable. Mr. Shiller’s chart shows that home prices from 1940 through 2000 rose at an annual real, or inflation-adjusted, rate of 0.7%. Data from the Census Bureau, however, puts the real rate at 2.3% for that period. Part of the difference may be due to improvements in the quality of homes, Mr. Lawler says, but he doubts that accounts for the whole gap.
Mr. Shiller responds in an email that much of the difference “is indeed caused by quality change.” He cites Census data showing that nearly a third of American homes lacked running water in 1940.