Champagne Valley

I’m finding discussion of the housing bubble to be quite entertaining. While practically everybody on two feet in California and many other parts of the country has been scheming to get rich through buying a house (or two or three…), we’re happily renting contrarians who think these boom times will not last. A favorite blog of mine nowadays is The Housing Bubble 2, full of housing bear talk.

Nowadays I’ve been looking at housing prices more systematically. A good data source is the Office of Federal Housing Enterprise Oversight House Price Index. Above is a graph I made showing the value of this index for the Sacramento metropolitan area. Note how things were comfortably trundling along at a 5% growth rate until the year 2000, at which point house prices take off in this area at about a 15% appreciation rate. To my eye, this looks completely unsustainable and likely to fall back to the historical line of increase.

It is interesting to compare appreciation rates over the past 30 years to recent growth rates, say since 1999. At right is a map I made that depicts this. What is plotted is the growth rate since 1999 divided by the historical growth rate (since 1975). Red is high, a ratio of 3 or above, bright green is a low ratio (between 0 and 1). What was a bit surprising is that the frothiest region in California (by this definition of froth) is not the Bay Area, is not Los Angeles or San Diego, but is in fact the Central Valley. Welcome to my home.