I don’t have time to do too much on this but thanks to the folks at the St. Louis Fed – who are doing the Lord’s work – I can produce a quick graph to make a point.

There are lots of explanations for why we had a housing bubble, but I suggest that there was nothing unusual about the price of housing. Construction costs went up a bit during the boom. What really soared in price was the land the housing was sitting on.

What was the cause of this: Fannie/Freddie, the CRA, the Ownership Society, Republicrats and Democans, Countrywide!? Well, I don’t know about all those but I do know that the soaring price of land didn’t look any different than the soaring price of everything else that comes out of the ground.

Here is the run-up in housing prices versus the Producer Price index for Crude Goods, ie stuff that comes out of the ground. The thick pink line is the Crude Goods index.The thin lines are the housing price indexes from the various census regions. The top thin blue line is the Pacific Region. The bottom green line is the East North Central Region, which is basically the rust belt.

The index is based on 100 for everything just before the 2001 recession started.


As you can see crude prices are more volatile. I argue this is because housing is in part made of an actual house not just the land the house sits on. But, you can see that places were land is the majority of the cost of housing – the coastal regions – saw the biggest run up and the biggest decline.

I chose the beginning of the recession as the index period for the very sophisticated reason that its one of the options on the FRED instant graph drop-down box. If you look at the end of the recession the dominance of crude goods is even more obvious.


Now we can ask and I think we should, why housing prices actually started to tank so soon. I think that has to do with the fact that the credit collapse came in the US before the rest of the world and so internationally traded crude goods continued to rise in price even after demand for land  in the US had slowed down.

Though let me be clear. I don’t mean this as the definitive word by any means. This is the just a rough cut from 15 mins on FRED. However, I think it makes the basic point: the soaring price of land didn’t look weird in comparison to the soaring price of other crude goods.

As a side note, I’d be interested to see if we had a mobile home bubble. I don’t know the details on lending for the purchase of mobile homes but regardless I am guessing that the price appreciation for mobile homes sans land was negligible.