CR

Excellent charts! A picture says more than a thousand words. I saw something similar from Grantham except he showed different countries and standard deviations.

Thanks.

dryfly,

Right on. I suspect that CR used Peoria and Wichita because I had referenced them a few times in the past, here and on my own blog.

I don't know if anyone noticed, but in the OFHEO link in this post, the lowest 20 MSAs for 1 year appreciation included Wichita (2.3%) at 10th from the bottom.

Small/medium sized cities indeed have idiosyncracies that matter. One industry towns can be affected by shocks to that sector. You can actually see that in the housing stock in these cities as building goes through booms and busts that are not precisely correlated to the national average. Brad's comment is also on target here.

If you look at the census division map in the OFHEO document, you'll see the middle third of the country has experienced 7.3%, 6.65%, 4.8%, and 5.4% appreciation this year in the central regions. Not bad on average, but nothing like the more urban areas.

Oh, and the people buying houses in Peoria are actually living in them, I've been told that this isn't always the case in the more "frothy" areas. On the margin, I think that matters too.

If (when?) there is a decline in housing market in the urban areas, it will not go unnoticed by us midwesterners. The actual effect will depend on a lot of things, including those mentioned by previous commenters. We're not necessarily "insulated" from it. But I just cannot call this a nationwide bubble. I have a hard time calling 2-4% year-on-year appreciation (that includes refis in their methodology) a bubble.

Having made the transition from renter to homeowner in Peoria 4 years ago and knowing people who still rent, I wouldn't charactarize Peoria's rent/price ratio as being out of balance.

I agree that you couldn't put together a good series on rent/price for a smaller cities because of the sample size problem. Again, the idiosyncracies of each city are going to tell far more stories than one series for the midwest possibly can.

"Fundamentals are so 19th century"

Tell that to the millions who believed that in March, 2000. I remember the "fundamentals no longer apply" argument right before the stock market returned to it. Oh yeah, and that was in... 21st century!

"Show me a person who belives cash flow from an ongoing bussiness or investment is the way to wealth and I'll show you a poor man. A sucker. A fool."

Show me a person that don't believe this, and for every one that succeeded, I'll show you 99 that are broke. You have to face the fact that vast majority that over-leverage their investments lose money. And vast majority of those who win are professionals that do it for a living.

Come on, who are you kidding? If you truly belive this appreciation in housing market is based on cheap lending standards, what happens when that stops (and it will soon)? Does prices tumble based on strict lending standards? The rent/buy ratio largely works (and have adjusted to a very consistent ratio for a long time now) because it's reality for most people. When put in the real-life situation of having to fork up $2500 for mortgage vs. $1500 for rent for the same place, most people can't help but choose the latter. That's not crap, that's life most people lead.