Yes, I have been prescribing painful economic medicine, but this advice has not been in my own self-interest. This past summer I moved from Southwestern Michigan to Central Texas. As part of this move, I put my home on the worst national housing market in the past 40 years. What made my life even more interesting is that my house was placed on one of the worst state housing markets as well. Consequently, my home has been getting few bites and I have been making two home payments. Two home payments for our one-income family have been painful. Questions about this arrangement persisting for some time--some observers are predicting the housing recession will continue through 2009--has also been troubling. To add some perspective to this discussion consider the two figures below. These figures show the growth rates of the OFHEO housing price index for the nation, the state of Michigan, and South Bend, Indiana. The latter one is included because my home was not too far from South Bend, Indiana. The first figure shows the growth rates of housing prices unadjusted for inflation:
This figure shows the Michigan housing has had some big swings in the past and currently is declining in current dollar terms. Moreover, the figure indicates that Michigan and South Bend housing markets never really were part of the housing boom during the 2003-2005 period. The bottom line from this figure is that I bought a home in a particularly weak housing market... not very promising. But wait, there is more to this story. The above figure does not adjust for inflation. What has been the real return for houses in Michigan over this time? The next figure, which takes the OFHEO index and deflates it with the PCE deflator, answers this question:
Now back to my world. This week my wife and I finally received an offer on our home. We gave a counter offer and the prospective buyers accepted. Our counter offer requires us to bring money to table. We are glad to be paying this amount just to unload our home. So, we too have been hit by this housing recession. I would like to think that makes me an academic who has not lost touch with the real world
I redid the second figure with the PCE deflator. The results seem more reasonable than what they were using the CPI as the deflator.