Earn What You Spend

Housing prices continued their descent - both housing resales and overall prices declined in January.  None of this is unexpected - especially as the stimulus plan, which contains a number of tax provisions directed at homeowners, was at that point still a plan, and not a law.  

Here are the raw numbers: home resales were off by 5.3% from December, and the medium home price fell 14.8% from last January.  

What we’re seeing happening in the real estate market is quite similar to what is happening in the stock market - the sidelines are filled while fewer are actually playing in the game.  Why are potential homebuyers holding off?  There are a number of reasons: belief that the prices will fall further (NB: they will), inability to secure a mortgage, waiting for the $8,000 tax credit in the stimulus plan to take effect. 

This bubble continues to deflate - but how far along are we?  Not yet near the bottom, at least according to this chart from Robert Schiller (via Clusterstock):

We’re currently right where the solid line ends and the dotted line begins.  It’s hard to imagine we’re not still drastically overpriced when you look at this graph.  Even if we think the year 1880 is a ridiculous baseline (I’m not convinced of that particular year’s merits), housing prices are still significantly higher than they were in the most recent real estate booms.   So by any reasonable assumption, we’re still on the way down.