1937: Home Prices

Thanks for your positive response to Edition 00 of Monterey Village.  A few of you have asked me to divulge Sven's real name.  Sorry.  What happens in the blog, stays in the blog.  No real names.  Only real stories.

Onto the business at hand, this email I received from RL:  "Dear Jeff: Enjoyed your brief history of Monterey Village.  As I mentioned at your BBQ last Sunday, I'm thinking of giving up my glamorous life in Hollywood for a quiet, comfortable existence in Monterey Village.  But I worry about buying a home then watching it's value decline.  Historically, how have home prices held up in MV?  Your friend,  RL."

Well, RL, as you know, my econometric model of the real estate market in Monterey Village is one of the best in the business.  Unfortunately, my super computer blew a vacuum tube.  So to answer your question, I'll need to consult a less reliable source:  The Los Angeles Times.

An advertisement in the October 17, 1937 edition (Footnote #1) lists the asking prices of 4 houses in the neighborhood:   $4500, $6350, $6950, and $6750 (Footnote #2).  The average of these four is $6137. 

Now flash forward 73 years to August 29, 2009.  What are those houses worth today.  Zillow.com says:   $680,500, $885,500, $871,500 and $938,000.  Or an average price of $843,875.

That is a 13,649% total average gain!  Or, looked at another way, it's a 6.37% yearly increase compounded annually for 73 years.  Not bad.  Especially considering my savings account is fetching about 1% right now.

Of course, any investment advisor will tell you "past performance is no guarantee of future results."  In other words, despite the findings of this rigorous historical analysis, home prices could go down tomorrow.  Or they could go up.  Or they could stay flat.

So, in the end, I don't have any advice for you, RL.  But I appreciate the opportunity to share my ignorance with you.  And I hope some day, you'll give up that wild life in Hollywood.  As my mother says, "You're not getting any younger."
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Footnotes:

1. LA Times - October 17, 1937



2. Investment Returns:  Monterey Village Homes vs. Gold vs. DJIA

                                  1937                       2009             % Gain       

     4653 Longridge:  $4500                    $680,500
     4624 Van Nord   $6350                    $885,500
     4544 Mary Ellen  $6950                    $871,500
     4641 Van Noord $6750                    $938,000

     Avg. Hm. Price    $6137                    $843,875           13,649%

     Gold (per oz.)      $34.79                          $949              2,628%

     DJIA                $135.94  (11/1/37)        $9,539              6,917%