Housing Price Decline
Hardly news, I know, but housing prices continue to decline:
The Standard & Poor’s/Case-Shiller home-price index, a closely watched gauge, fell 2.2% in October from September and 18% from a year earlier, the sharpest declines in the data’s two-decade history. The index has fallen 23.4% since its mid-2006 peak, pushing prices back down to March 2004 levels.
So we’ve hit the bottom, right? I don’t think I’m alone in saying not yet. Let’s take a look at the graph:
Source: Clusterstock
While that looks like a precipitous decline, it’s important to keep in mind what we’re looking at: the percent decline compared to a year ago. While the past few years have been brutal, you can’t erase years of double digit growth with only two years of declines at this rate.
Prices in major metro areas doubled between January 2000 and mid-2006, according to the Case-Shiller data. Despite the massive declines over the past two years, housing prices in October remained 58% higher compared with the early 2000 level. New York prices now remain 90% above their 2000 price level, showing the most price appreciation over that period. At the other end of the spectrum, Detroit prices are down 14% from their 2000 price level.
If you bought your house eight years ago (at least everywhere but Detroit), you’ve still made out quite well, especially in NYC. So how much further do we need to fall? John Carney says quite a bit:
Given the current rate of decline and the fact that house prices still have yet to reach their long-term historical average relative to incomes and rents, we remain comfortable with our prediction of a 35%-40% total decline.
Why do we need to fall so much more? I’ll close with one of the best quotes I’ve read in quite a while:
It’s just hard to see how already over-leveraged consumers can be induced to pay above-average prices for houses and take on more debt when layoffs and the recession are still gaining steam.
