A History of U.S. and Mendocino Home Prices

The Yale economist Robert J. Shiller created an index of American housing prices going back to 1890. It is based on sales prices of standard existing houses (not new construction) to track the value of housing as an investment over time. It presents housing values in consistent terms over 116 years, factoring out the effects of inflation.

The 1890 benchmark is 100 on the chart. If a standard house sold in 1890 for $100,000 (inflation-adjusted to today's dollars), an equivalent standard house would have sold for $66,000 in 1920 (66 on the index scale) and $199,000 in 2006 (199 on the index scale, or 99 percent higher than 1890.)

How do Mendocino housing prices compare to overall US housing prices? The orange line represents inflation-adjusted Mendocino housing prices - pretty dramatic! (Data for US housing prices represented by the black line ends at 2006. Data for Mendocino housing prices is more extensive and illustrates the peak in 2007, falling in 2008 and 2009.)

There are several things to be learned from this information. First, almost every time the market spiked up sharply, it spiked down just as sharply. Second, with the exception of short-term, periodic housing booms, housing price increases over time are largely the result of inflation. Third, never before in over a hundred years of housing prices have we witnessed the sort of increase in prices that we saw during 1997-2007. And anything that goes up like a rocketship invariable comes back down like a rocketship.

To further dramatize the unprecedented run-up in prices during the 1997-2007 real estate boom and the current market correction we're in now, watch this Real Estate Roller Coaster video. Warning: This video ride may cause dizziness in persons who are afraid of heights!