Until about 2006 if you talked to anyone especially real estate agents, they’d always tell you that on average nationwide that housing always goes up a price. And there could be lay offs and maybe oil drops off and people have pay out taxes, so housing prices gone taxes or they have lay offs in Michigan so housing prices go down there but nationwide, housing prices do nothing but go up. And that for the most part has been true since the great depression. Housing prices have been going up maybe 1% or so per year a little bit less in real terms. But something fundamentally amazing happened in the beginning part of this decade. I have right here, this is the case chiller index and this is probably the best estimate of housing prices I can find. This is better than the media because the case chiller actually tries to compare the price you pay for the same house. And maybe I’ll do another video later on on how they exactly do that.
But if we look at the case chiller index, let’s see in 2000, that’s where they index it to, a house that cost $100,000 in 2000 or the index was at 102,000. By 2004 that house nationwide, this is the national index right here, nationwide prices had increased by 46% and by 2006 where they peaked, they had increased by 88%. They almost doubled since the price in 2000. And so the obvious question is why did this happen? What drove the prices to increase so fast when really for most of the history of America, housing prices have never increased this fast. Especially considering what was happening in the broader continent. What do I mean by that? Well, for the price of anything the increase was has to happen.
Well, the demand has to increase faster than the supply, right. So let’s look at possible theories. What are demand drivers that could have made housing prices go higher? Let me write that in green. Well maybe the population grew faster than the housing stock. When I said the housing stock I just mean that, well we’re saying just demands, so let me just say population, housing stock is supply. So population goes up. That’s the demand driver. What’s another demand driver? Incomes go up. That’s another reason. Maybe a lot of people have become a lot richer. They’re willing to pay for houses.
Now what are supplies? What are the supply drivers? Well these are just new homes built. So if you buy the classical supply demand argument why housing prices increased by 40% from 2000 to 2004, or why they increased by 80% from 2000 to 2006. These dynamics should have grown faster than these dynamics. So the population or maybe the total income, if you take the population and the incomes were faster than the new homes built. So lets see if that’s true.
So I found this New York Times article and you could do some Google searches, I'm sure you could find the probably better data. This is just me doing a very fast search on the stuff. Let me see if I can get it up. Okay here it is. So this is from the New York Times article. This is a little graph. And this is showing, this is the average of income support on all tax returns. So notice, from 2000 to 2004 the average reported actually went down. It actually went down from 2000 to 2004. And this is address, let me see if I can bring this in here. So here they say, total reported income at 2004 dollars. So they adjusted for inflation. It fell 1.4% but because the population grew during that period, average real incomes declined more than twice as much falling by 1,641 a year or 3%. So what are they saying? They're saying the total income fell by 1.4% but the population must have grown by about one and a half percent. And so the average per capital was 3%. So let me write that in summary. So what do we know? What happened? We know from 2000 to 2004, and this is nationwide, we know that the population increased by roughly 1.5%. So not by much, I mean this is over 4 year period so per year it was growing by less than a percent. And then if you go to the income, income per person, well this is actually income per tax filing. So that’s a pretty good proxy. Income per tax filing, that declined by 3%. So the total money available that New York Times article just showed us actually declined by, what did they say, by 1.4%.
So the argument that somehow there's more money out there chasing the same number of homes or slightly larger number of homes doesn’t really carry much weight. But let’s just make sure. Maybe for some reasons maybe houses were destroyed or the number of homes built just to keep pace with this population increase. So let’s see what date we can find on that.
I found this thing. This says that, this was in 1999. They say the composition of estimated 115 million housing units in the United States, so we can say roughly that in 2000 that there are 115 million housing units. So let’s see over this time period roughly how many housing units were built. What percentage that the housing stock increase by and I found this data here and this is annualized new home built by year. And I'm not going to go through all of the math but if you see, lets see, if I go back to 2000, I know this might be hard for you to see, but if we pick up pretty much any month from 2000, 2001, this is in thousands. So in annualized basis, maybe 1.5 million homes, that was 2000 but it started to get accelerating all the way to 2004. By 2004, we were building roughly 2 million homes a year. So over that time period, we can say on average, you can work the numbers to get an exact number but should work out, we’re building about 1.8 million new homes a year. And we could assume that homes destroyed were pretty negligible. I'm not aware of most neighborhoods where they're bulldozing homes. If anything, they were just renovating homes. But these are brand new homes. So over that 4 year period, I'm just going to focus there because that’s where we got data from the New York Times article. How many homes were built? Well 1.8 times 4, so roughly 7.2 million new homes were built over that time period. And we started with the base of 115 million, roughly in 2000.
So over that time period, the housing stock increased by 6%, so the supply of homes went up by 6%. So what's going on here? From 2000 to 2004 we built a ton of houses. The supply of homes went up by 6%. People’s income actually went down because we were in recession. People getting laid off or they were just willing to work for less, income went down. And the population barely increased. And if we look at the total dollars that were being earned, that actually went down. So the actual money out there to pay for houses went down and at the same time the total number of houses went up. But at the same time, in order this exact same period, the prices of houses went up by 46%. Or I forgot the number but it was 40 something percent. And it actually continued to raise up until 2000 until 2006 where it went up 80% relative to 2000.
So this is bizarre. Basic economics will tells us that if the supply is increasing and the demand is decreasing, prices if anything should come down. So what happened? So I'm going to let you think about that a little bit but there you have the supply, demand thing that will tell you if prices went down but not only did they not go down but they raised up faster than they’ve ever done in the history of the United States.
So the next video, I'm going to tell you frankly why I'm pretty sure housing prices did go up. See you soon.
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