CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs CEPR Blog Harvard's Joint Center on Housing Still Doesn't Understand the Housing Market

Harvard's Joint Center on Housing Still Doesn't Understand the Housing Market

Written by Dean Baker   
Tuesday, 24 May 2011 05:34

Harvard's Joint Center on Housing, which became famous for its failure to recognize the housing bubble, apparently still has no understanding of the housing market. An article by the Associated Press that refers to analysis done by the Center fundamentally misrepresents trends in the housing market.

It tells readers that:

"From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002."

Actually from the 1953 to 1996 house prices just rose in step with the overall rate of inflation according to the Bureau of Labor Statistics home price component (eliminated in 1981) and Federal Housing Financing Authority's House Price Index. The entire increase in real prices occurred during the bubble years from 1997 to 2007. This means that prior to 1996, homeowners had no reason to expect price appreciation in excess of inflation.

The article also tells readers that:

"Before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas, according to Moody's Analytics. Today, by contrast, it's cheaper to rent in about 72 percent of metro areas."

This is complete nonsense. House prices have plummeted since the bust and interest rates are lower today than at any point prior to the collapse of the bubble. There is no consistent methodology that would show that the cost of renting has fallen relative to the cost of ownership.

The article also asserts that:

"the median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010."

This is misleading because this figure does not control for the quality of the units on the market. The Bureau of Labor Statistics rental index, which does control for quality, rose at just over a 2 percent rate during this period.

[Addendum: A reader has called to my attention the fact that the comments cited in this post may be from AP alone and do not refer to the joint analysis with the Harvard Center that is cited at the beginning of the article.]

Comments (8)Add Comment
Harvard Scholarship
written by bobbyp, May 24, 2011 7:42
Scholarship is not Harvard's mission.
Harvard Hedge Fund (Endowment)
written by Union Member, May 24, 2011 9:17
Market volatility functions as peer review.
The JCH advisory board
written by David, May 24, 2011 9:56
Who's interest do you think the JCH serves?


Policy Advisory Board - Member Companies

American Standard

Andersen Corporation

Armstrong World Industries, Inc.

Beazer Homes USA, Inc.

BlueLinx Corporation

Boral Industries

The Bozzuto Group

Bradco Supply Corporation

Builders FirstSource

Canfor Corporation

CertainTeed Corporation

Charlotte Pipe and Foundry Company

Dow Building Solutions

Fannie Mae

Forestar Group, Inc.

Fortune Brands, Inc.

Freddie Mac

GAF Materials Corporation

Gibraltar Industries

Hanley Wood, LLC

The Home Depot

Home Renewal Systems

Hovnanian Enterprises, Inc.

Huttig Building Products, Inc.

Ivory Homes


Johns Manville Corporation

KB Home

Kohler Co.

Lafarge North America

Lennar Corporation

Louisiana-Pacific Corporation

Masco Corporation

Masonite International Corporation

M/I Homes, Inc.

MiTek Industries, Inc.

Moulding and Millwork, Inc.

Move, Inc.

National Gypsum Company

Oatey Company

Oldcastle Building Products, Inc.

Owens Corning

Pella Corporation

Ply Gem Industries, Inc.

ProBuild, Inc.


Realogy Corporation

The Ryland Group

S&B Industrial Minerals S.A.

The Sherwin-Williams Company

Simpson Strong-Tie

Stock Building Supply


USG Corporation


Whirlpool Corporation

written by PeonInChief, May 24, 2011 12:01
Anyone who lived in a bubbly area knows that renting was cheaper than buying through most of the bubble. Indeed my arithmetically-challenged self determined that, by 2003, buying a house would cost nearly twice what we paid in rent. I ran several mortgage calculators, but my favorite was one of the realtor calculators. It suggested that, instead of calculating according to the rent I was paying, I should calculate according to the rent for the house I really wanted. Malibu cottage? Three bridge view in the Oakland Hills?
What Dean Baker Forgets
written by Hugh Sansom, May 24, 2011 12:58
Dean Baker has forgotten one of The Axioms: If it is uttered by a Harvard lad, then it is TRUE. This is the creed endorsed by the Obama camp in its enthusiasm for Elena Kagan and condemnation of Sonia Sotomayor (recall Laurence Tribe's now-infamous comments). This is the creed at work when a glorified thief like Andrei Shleifer can hold onto his faculty post after bilking an entire nation of billions. This is the Harvard of Milton Friedman and Samuel Huntington and Martin Kramer and a slew of not-just-wrong 'scholars' but war-criminal-scholars. The closest any other school comes is Stanford with Rumsfeld and Rice.

Empirical support for a claim is irrelevant when that claim comes from the hallowed halls of Man's Greatest University. (Say amen!)
written by liberal, May 24, 2011 1:09
Actually from the 1953 to 1996 house prices just rose in step with the overall rate of inflation...

Not really believeable.

It might be true for "housing," but the real question is what do home prices do longitudinally.

I presume the government agencies try to adjust for the quality of the house, e.g. square footage, but I'm unaware of any claims that they adjust for site value (e.g. distance from urban centers).

If home prices rose at merely the rate of inflation, then asymptotically the cost of a home would tend to zero, as a fraction of income. Not believeable.

Dean is a brilliant economist, and correctly called both the internet stock bubble and the housing bubble, but like most economists he doesn't understand land economics, where the overriding principle is the fact that land is in fixed supply.
written by DWG, May 24, 2011 2:29
Question: isn't the below quote a tautology (saying house prices rose in step with measures of house prices)? Isn't the proper mark CPI?

"Actually from the 1953 to 1996 house prices just rose in step with the overall rate of inflation according to the Bureau of Labor Statistics home price component (eliminated in 1981) and Federal Housing Financing Authority's House Price Index."
written by djt, May 24, 2011 4:55
I work for one of the companies on the JCH list and our executive participants always looked at it with a highly skeptical eye. I was asked to make my own analysis for planning purposes (this was 2007) of the size of the housing market over the next ten years. I thought about 1/2 the projected Harvard number due to huge overbuilding through the bubble. In fact, for the last 4 years home construction has been half my own estimate, but I still have 5 years to be proven right for the whole period!

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613
budget economy education employment Haiti health care housing inequality jobs labor labor market minimum wage paid family leave poverty recession retirement Social Security taxes unemployment unions wages Wall Street women workers working class

+ All tags